Tag: consumer price index

Lower Gasoline Costs Send Consumer Prices Lower for the Second Month

The consumer price index fell for the second straight month in December, down 0.4 percent, according to the Bureau of Labor Statistics. This was widely anticipated, particularly given the sharp decline in gasoline prices, which fell 9.4 percent for the month. Indeed, the index for gasoline fell 22.4 percent in the second half of 2014. This mirrored data from the Energy Information Administration, which reported that the average price of regular conventional gasoline this week is $2.07 per gallon, down from $3.64 a gallon during the week of June 23, 2014. This has helped to bring headline inflation down significantly, with consumer prices up just 0.7 percent year-over-year, off from 2.1 percent six months ago. (continue reading…)

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Consumer Inflation Eased Slightly in July, but with Prices Up 2 Percent in the Past 12 Months

The Bureau of Labor Statistics said that consumer prices increased 0.1 percent in July, its slowest pace in 6 months. Nonetheless, food prices continue to rise, up 0.4 percent in July. The price of food purchased for the home has risen 2.2 percent year-to-date, or 2.5 percent in the past 12 months. The bulk of this increase has come from meats, eggs, shellfish and fresh produce. For instance, consumers have spent 9.3 percent more year-over-year on meats (e.g., beef and veal, pork, poultry and fish and seafood), with an increase of 0.4 percent for the month, mirroring the headline figure.

In contrast, energy prices have eased, mirroring producer price data released last week. Consumers have benefited from lower prices for natural gas and petroleum. For instance, the cost of West Texas intermediate crude oil declined from a recent peak of $107.95 per barrel on June 20 to $98.23 on July 31. The consumer price index data suggest that energy prices fell 0.3 percent in July. At the same time, energy expenses have risen 1.2 percent over the past 12 months, largely from higher costs for the home.

Excluding food and energy, consumer prices were up 0.1 percent, matching the increase seen the month before. Higher prices for apparel, medical care, new motor vehicles and shelter were somewhat offset by reduced costs for transportation services and used cars and trucks.

Overall, the consumer price index rose 2.0 percent from July 2013 to July 2014, its fourth straight month with an inflation rate of 2.0 percent or more. With that said, it represents an easing from the 2.1 percent paces seen in May and June. The core inflation rate – which excludes food and energy – has been 1.9 percent for three consecutive months.

While core pricing pressures have accelerated from earlier in the year, they appear to be stabilizing somewhat this summer. That should be good news for the Federal Reserve, which has targeted 2.0 percent in its stated goals. Still, the Federal Open Market Committee will closely watch to see how pricing pressures develop in the coming months, particularly as it prepares to start normalizing short-term rates in early 2015.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – June 23, 2014

Here are the files for this week’s Monday Economic Report:

The Federal Reserve Bank downgraded its estimates of growth for 2014, with real GDP growth of 2.1 percent to 2.3 percent. This was down from its March projection of 2.8 percent to 3.0 percent, largely due to weaknesses in the first quarter. Nonetheless, the Federal Reserve still projects a pickup in activity during the second half of the year that will continue into 2015, with an unchanged outlook of 3.0 percent to 3.2 percent growth next year. The unemployment rate is anticipated to fall to 6.0 percent by year’s end and as low as 5.4 percent in 2015.

With that in mind, the Federal Open Market Committee (FOMC) observed that “growth in economic activity has rebounded in recent months,” even as it cited continued slack in the labor market. The FOMC continued to taper its asset purchases, down from $45 billion per month to $35 billion, and it mostly reiterated its intent to keep a highly accommodative monetary policy stance for the foreseeable future. Short-term interest rates are expected to start rising at some point next year. Yet, there is renewed chatter among “inflation hawks” about increased pricing pressures of late. Core consumer prices, which exclude food and energy costs, rose 1.95 percent over the past 12 months, its fastest year-over-year pace in 19 months. While inflation still appears to be in check, the recent run-up in costs has fueled a debate about whether short-term rates might need to increase sooner than conventional wisdom might suggest.

For manufacturers, activity continues to recover from winter-related softness at the beginning of the year. Manufacturing production has risen 2.8 percent since January’s decline, with 3.6 percent growth over the past 12 months. Capacity utilization for the sector increased to 77.0 percent in May, its highest level since March 2008. Similarly, manufacturers in the New York and Philadelphia Federal Reserve districts reported strong growth in their respective June surveys. More importantly, respondents were mostly optimistic about future activity. More than half of those taking each survey said they anticipate increased new orders over the next six months. The Philadelphia Federal Reserve report also noted that 73.9 percent of its manufacturers predicted increased production in the second half of this year, with nearly 48 percent forecasting output growth of more than 4 percent.

Meanwhile, the housing market has provided mixed progress so far this year, even as we remain cautiously optimistic about future months. New housing starts decreased from an annualized 1,071,000 units in May to 1,001,000 in June. Despite the decline, it was the second straight month that starts have exceeded 1 million units, and the underlying trend remains positive. April’s figure was an outlier, with the year-to-date average being 969,000. As such, we continue to make slow-but-steady progress. At the same time, housing permits also declined, but single-family permitting increased from 597,000 units at the annual rate to 619,000, the fastest pace since November. This could be a sign that residential construction will accelerate in the months ahead. I still believe we will reach 1.1 million housing starts by year’s end. Moreover, homebuilder confidence was also higher for the month.

This week, we will get additional data on the health of the housing and manufacturing sectors. The Kansas City and Richmond Federal Reserve Banks will unveil their latest surveys, and Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. We hope they will continue to reflect rebounding activity in the United States, and analysts will be closely following the June Chinese PMI data to see if the sector expands for the first time in 2014. The other key number to watch will be the second revision of real GDP for the first quarter. The consensus estimate is for the decline in output to exceed 1.5 percent, worse than the 1.0 percent decrease in the first revision. Other highlights include new data on consumer confidence, durable goods orders and shipments, existing and new home sales and personal income and spending.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Consumer Prices Continue to Rise in May, Core Inflation Nears 2 Percent

The Bureau of Labor Statistics reported the consumer prices increased 0.4 percent in May, their strongest monthly gain since February 2013. Food and energy costs both accelerated in May, helping to push the overall consumer price index higher. The cost of energy soared 0.9 percent for the month, accelerating on rising electricity (up 2.3 percent) and gasoline (0.7 percent) expenses. The jump in electricity prices followed a 2.6 percent decline the month before; on a year-over-year basis, electricity costs have risen modestly, up 3.6 percent.

Meanwhile, food prices continue to move rise, up 0.5 percent in May and 1.8 percent over the past five months. The increase was mainly attributable to increased costs for meats, seafood, eggs, dairy, and vegetables. Outside of food and energy, the largest increases were for apparel, lodging away from home, housing, transportation services, medical care, and new vehicles.

The consumer price index has risen 2.1 percent over the past 12 months, up significantly from the 1.1 percent pace seen just 3 months ago in February. Core inflation – which excludes food and energy costs – was up 1.95 percent year-over-year, up from 1.8 percent the month before. As such, core pricing pressures have neared the 2 percent threshold set by the Federal Reserve Board, and May’s year-over-year pace was the highest level in 19 months.

With the Federal Open Market Committee (FOMC) meeting the next couple days, the fact that inflation has accelerated will no-doubt be a relevant conversation, particularly for hawks on the committee. At least for now, pricing pressures appear to be in-check, hovering around the Fed’s stated target. Yet, the Fed will also keep a close eye on it to see if core pricing pressures continue to accelerate in the months ahead. My guess is that they will stabilize somewhat, and some of the current pressures are transitory in the short-term.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Consumer Prices Pick Up in April, with Core Inflation Rising to Its Fastest Pace in 13 Months

The Bureau of Labor Statistics reported that consumer prices rose 0.3 percent in April. Of particular note, food prices have increased by 0.4 percent for three straight months, with the year-over-year pace for food purchases rising from 1.1 percent in January to 1.9 percent in April. We saw similar impacts from rising food costs in yesterday’s producer price index release. The greatest monthly gains in the food segment were meats, poultry, fish and eggs (up 1.5 percent), fruits and vegetables (up 0.7 percent), and dairy products (up 0.5 percent).

Meanwhile, energy prices had declined in February and March after weather-related increases in December and January (stemming from additional home heating costs). Energy costs increased 0.3 percent in April, but remain only marginally higher than where they were in December despite the recent volatility. Increased gasoline prices (up 2.3 percent) more than offset reduced electricity costs (down 2.6 percent).

Outside of food and energy, core inflation was up 0.2 percent. There were higher costs for housing, medical care, new and used vehicles, recreation, and transportation services. On a year-over-year basis, core inflation rose 1.8 percent between April 2013 and April 2014, up from 1.6 percent the month before. This represented the fastest pace for core inflation since March 2013. Nonetheless, it remains below the Federal Reserve’s key threshold of keeping core pricing pressures below 2 percent, which it has done now on the consumer level since February 2013.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – April 21, 2014

Here is the summary for this week’s Monday Economic Report:

The Federal Reserve Board’s April Beige Book brought new evidence that the moderate economic recovery is getting back on track as the impact of the harsh winter weather abates. Manufacturing improved in most of the Federal Reserve’s 12 districts, growing at a “steady pace” in New York, Atlanta, St. Louis and Dallas, and gaining “some momentum” in San Francisco. The transportation sector strengthened, with the outlook described as optimistic. Reports on both residential and commercial construction showed that the sector continues to improve, albeit slowly; this was consistent with the moderate pickup in housing starts, from 920,000 in February to 946,000 in March. Consumer spending increased in most districts, confirming that the resilience of the household sector remains a key driver of the recovery. The Beige Book also indicated that price and wage pressures remain limited. This supports the majority view of the Federal Open Market Committee that there is still sufficient slack in the labor market to warrant an accommodative monetary policy for some time.

The Philadelphia Federal Reserve’s Business Outlook Survey painted a similar picture, confirming a pickup in manufacturing activity following weather-related weakness the previous month, and with respondents optimistic that growth would continue over the coming months. Demand for manufactured goods rose, with the new orders index at +5.7 compared to February’s -5.2; shipments also increased. Employment levels were steady, but the survey recorded a more optimistic outlook here as well, with the percentage of firms expecting higher employment rising to 34 percent compared to February’s 27 percent. Just under half of firms polled expected higher capital spending this year compared to 2013, with one-fifth expecting a lower level. Firms not planning to increase capital spending cited low growth, low capacity utilization and limited need to replace capital and technology equipment. Overall, the Philadelphia Federal Reserve survey and the Beige Book confirm that the recovery is gaining more traction, but also suggest it will take longer for the pace of activity to accelerate in a more decisive manner.

Federal Reserve Chair Janet Yellen underscored the benign inflation scenario in a speech at the Economic Club of New York—her second public speech since assuming the Federal Reserve’s leadership. Asked whether the Federal Reserve would be prepared to let inflation drift above 2 percent in order to provide additional support to the recovery, Yellen noted that the risks are still skewed toward inflation being too low, not too high, and the Federal Reserve’s challenge for the time being is to bring inflation up and closer to the 2 percent target. She also pointed out that this low inflation environment currently characterizes not just the United States, but other main advanced economies, notably Japan and Europe, where the European Central Bank is debating possible additional monetary stimulus. Yellen stressed, however, that the Federal Reserve is well aware that overshooting the inflation objective “can be very costly,” and will, therefore, tighten policy in a timely manner at a pace dictated by the improvement in activity and employment. Unwinding monetary stimulus at the right pace is essential to the recovery’s sustainability, and the Federal Reserve will keep striving to guide market expectations to minimize the risks of sudden adjustments in market interest rates during the transition.

Inflation, meanwhile, edged up in March, with the headline Consumer Price Index (CPI) rising to 1.5 percent year-over-year compared to 1.1 percent in February, driven by increases in the prices of food, natural gas and electricity, partially compensated by a drop in gasoline prices. Core CPI inflation, calculated by stripping out the more volatile energy and food components, rose to 1.7 percent year-over-year from February’s 1.6 percent. The Federal Reserve’s preferred measure of inflation, however—the change in the Personal Consumption Expenditure Deflator Index—is significantly lower and stood at 0.9 percent in February (the March figure has not yet been released).

This week will allow us to take the pulse of global manufacturing, with the Markit Flash Manufacturing PMIs for the United States, China and the Eurozone. The reading for China will be followed especially closely, given that an intensification of China’s slowdown might have repercussions on global demand for commodities. The durable goods report will offer another important gauge of the pace of the recovery and the health of demand for manufacturing in the United States. Other highlights include new home sales and the University of Michigan Consumer Sentiment Index.

Many thanks to General Electric Chief Economist Marco Annunziata for compiling this week’s Monday Economic Report.

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Higher Gasoline Costs Push Consumer Prices Up 0.3 Percent in December

The Bureau of Labor Statistics reported that consumer prices rose 0.3 percent in December, its fastest pace since June. The consumer price index had declined 0.1 percent in October and was unchanged in November. On a year-over-year basis, we have seen a pickup in consumer price inflation over the past couple months, up from 0.9 percent in October to 1.2 percent in November to 1.5 percent in December. Core inflation, which excludes food and energy costs, was 1.7 percent in December for the fourth consecutive month.

In essence, price increases continue to be in the acceptable range, with the annual pace of inflation remaining below the Federal Reserve’s stated goal of 2 percent. Year-over-year consumer prices have remained below 2 percent each month since February 2013. A similar finding was noted in yesterday’s producer price index release.

Nonetheless, December’s data did reflect a modest increase, with a 3.1 percent increase in gasoline prices pushing the consumer price index higher. Indeed, the monthly average for West Texas intermediate crude jumped from $93.86 per barrel in November to $97.63 a barrel in December.

Food prices increased 0.1 percent for the third straight month. In December, this higher figure stemmed largely from a rise in restaurant prices. Prices for food purchased at home were unchanged. Increased prices for meats, fish, and eggs were offset by declining costs for cereals and bakery products.

Outside of food and energy, core inflation was also up 0.1 percent for the month. There were increases in the price of apparel, medical care services, and shelter in December. In contrast, the cost of medical care commodities, transportation services, and used cars are trucks were lower.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – November 25, 2013

Here is the summary of this week’s Monday Economic Report:

The latest forecast from the Organisation for Economic Co-operation and Development (OECD) calls for continuing improvements in markets around the world, with global GDP accelerating from 3.7 percent in 2013 to 5.5 percent in 2014. According to the OECD, the U.S. economy, which should grow by 2.1 percent this year, is predicted to strengthen to 3.2 percent next year. If true, it would be the first year since 2005 that annual output would expand by more than 3.0 percent. However, weaknesses persist in emerging markets, and continued political risks could dampen the prospects for better growth.

The latest data tend to reflect the recent pickup in the global economy. Manufacturers in China and Europe have seen improvements in sales, exports and production over the past few months as their respective economies have begun to stabilize. At the same time, manufacturing activity in the United States has accelerated in the past few months from midyear weaknesses. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) rose from 51.8 in October to 54.3 in November, with output at its fastest pace since February. Meanwhile, surveys from the Kansas City and Philadelphia Federal Reserve Banks have reported expanding activity levels since the summer, even as some weaknesses continue. Hiring growth remains quite soft, with new orders slowing in the Philadelphia region and exports falling for manufacturers in the Kansas City region. Nonetheless, respondents tend to be mostly upbeat about the sector over the next six months in most sentiment surveys, including these.

Consumer spending and the rebound in the housing sector have both been bright spots in the economy over the past few years, but in data released last week, the two were moving in opposite directions. Retail spending increased 0.4 percent in October, with year-over-year growth of 3.9 percent. While the annual pace of retail sales has decelerated since June, October’s modest gains were a sign that consumer purchases were beginning to strengthen, especially for automobiles.

In contrast, existing home sales have fallen for two consecutive months, down from an annualized 5.39 million units in July and August to 5.12 million units in October. Higher mortgage rates were to blame for the decrease, with many buyers rushing to close in-process deals during the summer when interest rates were soaring. This made the levels in those months an outlier. The good news is that existing home sales are still on an overall upward pace, and mortgage rates have declined from their early September highs. Of course, long-term interest rates are likely to move higher again in the coming months, which could once again dampen housing purchases. My guess, however, is that homebuyers will become accustomed to the new normal in mortgage rates, which, while higher than earlier in the year, are still at historic lows. This will allow housing to once again move in the right direction.

Monetary policy actions are behind the moves in interest rates. Fortunately, pricing pressures remain extremely modest. Consumer and producer prices were both lower in October, led by declining energy costs. With overall inflation mostly in check, at least for now, the Federal Reserve has been able to utilize highly accommodative measures to pursue its dual mandate of price stability and higher employment. The minutes of its October Federal Open Market Committee (FOMC) meeting and Federal Reserve Board Chairman Ben Bernanke’s remarks at the National Economists Club both suggested that the Federal Reserve does not plan to tighten its monetary policy anytime soon. While the FOMC will probably vote to taper (or reduce) its asset purchases in the coming months, it will keep short-term rates effectively at zero—at least until the unemployment rate hits 6.5 percent. Chairman Bernanke’s address made it clear that 6.5 percent was the threshold at which the Federal Reserve would begin to debate possible changes, and not a “trigger” that would automatically mean increased fund rates. That would suggest “easy money” policies for at least the next year and perhaps beyond.

This week will be a shorter one due to the Thanksgiving holiday, but there will be several important economic releases of note. First, we will finally get housing starts and permits data, which were delayed due to the government shutdown. As noted earlier, residential construction ebbed somewhat during the summer with higher mortgage rates, but the consensus estimate is for roughly 910,000 new starts at the annual rate in October, up from 891,000 in August. There will also be a number of key data points on manufacturing activity, including durable goods orders and regional reports from the Chicago, Dallas and Richmond Federal Reserve Banks. Other highlights include consumer confidence and leading indicators data.

Chad Moutray is the chief economist, National Association of Manufacturers.

retail sales - nov2013

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Lower Gasoline Costs Push Consumer Prices Down in October

The Bureau of Labor Statistics said that consumer prices declined 0.1 percent in October, the first decrease in six months. The decrease was almost entirely attributable to lower gasoline prices, which were off 2.9 percent for the month. Indeed, the price of West Texas intermediate crude fell from $102.36 per barrel on September 30 to $96.29 a barrel on October 31. (It has fallen further since then, closing at $93.34 per barrel yesterday.) Total energy costs were down 1.7 percent in October, with electricity prices up 0.1 percent and piped-in natural gas energy prices down 1.0 percent.

Food prices edged higher by 0.1 percent in October after being unchanged in September. Food costs have risen very modestly over the past 12 months, up just 1.3 percent year-over-year. In October, the increased cost for meats, poultry, fish and eggs (up 0.6 percent) was mostly offset by lower prices for cereals and baking products (down 0.4 percent) and dairy products (down 0.2 percent).

Outside of food and energy, components with the greatest year-over-year price increases have included alcoholic beverages, education and communication services, medical care services, recreation services, rent for one’s primary residence, tobacco and smoking products, and transportation services.

The bottom line, though, is that overall consumer prices have risen just 0.9 percent over the past 12 months, decelerating from 2.0 percent in July and 1.2 percent in September. Much of this easing has come from reduced energy costs, with the energy index down 1.1 percent from July to October. Excluding food and energy, core inflation is currently 1.7 percent, a pace that was unchanged from the month before.

This suggests that inflation remains quite modest, with core inflation below the Federal Reserve’s stated target of 2 percent. Indeed, core inflation has not exceeded 2 percent since July 2012. This should allow the Federal Reserve to continue to pursue “highly accommodative” policies, even as it seeks to “taper” (or slow) its asset purchases at future Federal Open Market Committee (FOMC) meetings. In his speech at last night’s National Economists Club, Fed Chairman Ben Bernanke reiterated the FOMC’s commitment to keeping short-term interest rates essentially zero for the foreseeable future, perhaps beyond when the unemployment rate hits 6.5 percent.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Core Consumer Inflation Remains Low

The Bureau of Labor Statistics said that consumer prices rose 0.2 percent in September, moving higher on increased energy costs. This figure suggests very modest growth in inflation overall, with food costs unchanged for the month. Yet, energy prices were up 0.8 percent in September, rebounding from the 0.3 percent decline in August. This was largely due a jump in gasoline costs. Indeed, the price of West Texas intermediate crude oil rose from an average of $95.77 per barrel in June to averages of $106.57 and $106.29, respectively, in August and September. As we ended October, crude oil costs had fallen more to levels closer to the June average.

Outside of food and energy, components with the greatest monthly price increases included shelter expenses for renters and owners, medical care services, transportation services, and tobacco. At the same time, declining prices were observed for apparel, alcoholic beverages, and recreational activities.

Overall, consumer prices have continued to decelerate on an annualized basis, down from 2.0 percent year-over-year in July to 1.5 percent in August to 1.2 percent in September. Excluding food and energy, core inflation is currently 1.7 percent, edging down from 1.8 percent the month before.

The significance of this figure is that core inflation remains below 2.0 percent – the target set by the Federal Reserve Board. Core consumer prices have not exceeded the 2.0 percent annualized rate since July 2012. This frees the Fed to pursue accommodative policies to stimulate growth.

Chad Moutray is the chief economist, National Association of Manufacturers.

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