Friday, March 16, 2012

Gasoline and Autos

The Lehmann Letter (SM)

Today's business news was not good. February reports on inflation and production showed the former up and the latter flat.

The Bureau of Labor Statistics said that consumer prices (CPI) rose 0.4%, which translates to a 4.8% annual rate:

And the Federal Reserve reported no change in industrial production and a slight decline in capacity utilization to 78.7%:

If you read the bulletins linked above you will learn that gasoline and autos were mostly responsible for the reports. You have noticed the jump in fuel prices at the pump and, of course, the CPI reflected this. Automobile production rose in January and fell in February, and that skewed the industrial-production report.

But one month does not constitute a trend. Gasoline prices and auto production fluctuate. There should be little concern at this time about runaway inflation and falling production.

Besides - as is usually the case - the charts help put everything in perspective.

(Click on chart to enlarge)

(Recessions shaded)

Although 4.8% is a somewhat higher rate of inflation than we've had in recent months, the chart makes clear that consumer prices have fluctuated between 0% and 5% for about 20 years. No upward trend has developed.

Capacity Utilization
(Click on chart to enlarge)

(Recessions shaded)

Capacity utilization - the rate at which industry uses its plant and equipment - is now just below 80%. We need to see continued growth here. A stall would not be good. You can tell that a rate above 80% will finally signal a return to industrial well-being.

This letter will continue to report on these indicators.

(To be fully informed visit

© 2012 Michael B. Lehmann

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