US industrial production surprised to the upside in June. IP rose 0.6% MoM compared to expectations of a 0.3% gain. Two measures of momentum of industrial production are as positive as they have been in 18 months as well. The 3-month annualized change in IP surpassed 3% for the first time since the end of 2014. Six months ago IP was declining at a -5% annualized rate. Another measure of momentum that we look at is the 1-year difference in the 6-month rate of change. This tends to lead the year-over-year change in IP by about a quarter. This metric is growing at the fastest rate in 2 years and suggests that the year-over-year change in IP should finally flip into positive territory in the third quarter.
The headline CPI print was rather mundane as it came in at 0.2% MoM compared to expectations of 0.3% MoM. One component of CPI that has been creeping higher is housing, however. Rent of primary residence is 3.81% higher than a year ago which is the quickest rate since January 2008. Owners’ equivalent rent is growing at a 3.25% pace which is basically the fastest growth rate since June 2007. The current housing vacancy rate suggests that rent of primary residence inflation could move higher over the next year or so. However, house prices suggest that owner’s equivalent rent may continue to grow at this current pace for the next year.