Paul Vigna Wall Street Journal

The spring swoon may not hit the stock market this year – nothing, it seems, can hit the stock market this year – but it’s visible in the real world. Three data points this morning, as well as Europe’s ongoing morass, show that all is not well outside Wall Street.

The news has hit the commodities complex, gold fell under the $1,400 mark, as investors extrapolated the lower demand for commodities implied by the reports. The dollar’s rise of late hasn’t helped matters (as commodities are priced in dollars). The stock market seems to have shaken it all off rather quickly — the Dow’s up 61 points as of this writing — which given the market’s mindset these days, isn’t terribly surprising.

Producer prices fell by a more than expected 0.7% (albeit the “core” was up a less-than-expected 0.1%), an indication that manufacturers are feeling pricing pressures. With the full effects of previous drops in commodity prices still to be felt on the factory floor, producer prices are likely to keep falling, Capital Economics said. “This is especially the case given that weak activity is forcing firms to pass on lower costs in their selling prices rather than boost their margins,” the firm’s senior U.S. economist, Paul Dales, wrote.

What that means for corporate profits, where margins are still near historic highs, is worth pondering.

The New York Fed’s Empire State survey for May fell into negative territory for the first time since January, but it’s been slipping for several months now after peaking in February. It peaked in February last year as well, and the two years prior to that, 2011 and 2010, it peaked in April.

The industrial production report for April was also disappointing, falling o.5% from the month prior as warmer weather suppressed demand for utilities. But it wasn’t just utilities that felt the pressure, economist Chris Low at FTN Financial wrote.

“If it were just weakness in utilities it would be no big deal considering the surge in utilities output in March,” he said. “But the weakness in manufacturing is real and has been ongoing for several years. Manufacturing is profitable in the US, but partly because unprofitable operations have been shuttered.”

The drop in industrial production is having an effect on commodities today, although the shock seems to have worn off stocks. Crude oil futures were down nearly 2% earlier, although it’s taken back most of that, gold more recently was down more than 2%, falling back under the $13,00/ounce mark, and copper is down more than 2%.

The IP report also included the capacity utilization rate, which fell to 77.8% from 78.3%. The latter is worth a few sentences. Capacity utilization is exactly what it sounds like: the percentage of the nation’s production capacity that is currently being utilized. Even at the higher 78% rate, this measure has been below its long-term average — 80.2% from 1972 to 2012 — for the entire recovery, to say nothing of reaching its late ’80s high of 85.2%.

All this means there is an awful lot of “slack” in the economy. Demand is low, so production is low, which means wages stagnate, and that, in our opinion as we’ve stated before, is the best measure of this recovery.

“The spring slowdown of the US economy is taking shape,” Harm Bandholz, the chief U.S. economist at UniCredit UCG.MI +2.77%, wrote. After the first-quarter’s 2.5% GDP, “real GDP is expected to increase a more moderate 1.8% in the current quarter.” Bandholz thinks, however, the lull will be temporary, pointing to the latest ISM report that show very low customer inventories. “That suggests that the current inventory correction will be short-lived.”

For more on this story go to:

http://blogs.wsj.com/moneybeat/2013/05/15/stocks-ignore-the-days-data-commodities-cant/