Tag: consumer prices

Monday Economic Report – March 24, 2014

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

For much of the past month, people have been questioning how much of the recent softness in the manufacturing sector was due to weather and how much stemmed from other factors. The data released last week support the view that it was largely weather related, with numerous winter storms keeping shoppers from the stores and closing factories temporarily. Fortunately, manufacturing activity has rebounded in the latest reports. For instance, manufacturing production increased 0.8 percent in February, nearly offsetting January’s 0.9 percent decline, with capacity utilization for the sector rising from 75.9 percent to 76.4 percent. Similar rebounds were seen in the March surveys from the New York and Philadelphia Federal Reserve Banks, and more importantly, manufacturers continue to be mostly upbeat about new orders and shipments over the next six months.

In its monetary policy statement, the Federal Reserve Board’s Federal Open Market Committee (FOMC) acknowledged the negative effects of “adverse weather conditions” on recent activity. It also provided the following evaluation of the current economic environment:

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

The biggest news from the FOMC’s statement was the change in its forward guidance, as expected, to no longer mention an unemployment rate target. Since its December 2012 meeting, the FOMC has said it would pursue a highly accommodative monetary policy until the unemployment rate hit 6.5 percent and/or long-term inflation consistently exceeded 2.0 percent. With unemployment falling, this put the Federal Reserve in a predicament because job growth continues to be a challenge, particularly for the long-term unemployed, and progress in the unemployment rate fails to acknowledge loforw participation rates and underemployment that exists in the labor market. For this reason, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota opposed the change in the Fed’s guidance, and he subsequently said that he wanted a 5.5 percent unemployment rate target.

In the end, however, short-term interest rates cannot hover around zero percent forever, particularly with the U.S. economy improving. The Federal Reserve now forecasts real GDP growth in 2014 of 2.8 percent to 3.0 percent, with the unemployment rate falling to 6.1 percent by year’s end. The FOMC continued to taper its long-term asset purchases, down from $65 billion each month to $55 billion, and short-term interest rates are now expected to start rising sometime in 2015. (This is true even with new Federal Reserve Chair Janet Yellen’s suggestion that rates might begin to increase around six months after quantitative easing ends, a comment that spooked markets on Wednesday.)

Fortunately for the Federal Reserve, inflationary pressures remain minimal, allowing the FOMC to continue its stimulative measures for now. Consumer prices rose 0.1 percent in February, with core inflation increasing 1.6 percent over the past 12 months. Of course, higher interest rates could negatively impact spending, particularly for large consumer items and for business investments.

Along these lines, housing starts have stabilized a little, up from 905,000 annualized units in January to 907,000 in February, but still remain somewhat weak. On the positive side, housing permits—a proxy of future activity—exceeded 1 million for the first time since November, largely on gains in multifamily residential construction. Single-family permitting remained soft, however, and homebuilder sentiment continued to be down from where it was just a few months ago. In addition to weather challenges, National Association of Home Builders (NAHB) Chief Economist David Crowe attributes the current weakness to “a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”

Today, we will get March Markit Flash Purchasing Managers’ Index (PMI) data for the United States, China and Eurozone. In particular, economists will be looking to see if Chinese manufacturing activity continues to decelerate and if the slight easing in February’s data was a one-month phenomenon. (For more on international trends, see the latest Global Manufacturing Economic Update, which was released on Friday.) Other highlights this week include updates on consumer confidence, durable goods orders and shipments, GDP, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks, personal income and spending and state employment.

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

fed funds rate - mar2014

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Higher Utility Bills Due to Colder Weather Push the Consumer Price Index Up Marginally

The Bureau of Labor Statistics reported that consumer prices increased 0.1 percent in January, edging marginally higher for the third straight month. The largest increase in each of the last two months has been with energy goods (up 1.6 percent and 0.6 percent, respectively), but with a difference this time around. In December, higher energy prices stemmed largely from increases in gasoline, but the gains in January were primarily from an acceleration in household utility bills. A similar finding was noted in yesterday’s producer price index, with colder weather pushing up the cost of electricity and piped-in natural gas.

In contrast, food prices rose just 0.1 percent in January, both for food purchased for the home and at restaurants. Increased prices for baked goods, cereals, dairy products, meats and poultry were offset by declining costs for fruits and vegetables.

Outside of food and energy, core inflation was also up 0.1 percent. There were increases in the cost of medical care, housing, and transportation, but there were somewhat offset by declining prices for apparel and new and used vehicles. On a year-over-year basis, core inflation rose 1.6 percent between January 2013 and January 2014. While core prices have accelerated from October’s 0.9 percent annual pace, overall pricing growth remains mostly acceptable. For instance, it remains below the Federal Reserve’s stated goal of 2 percent, which it has done every month for 12 straight months.

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

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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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Consumer Price Index Was Unchanged in November

The Bureau of Labor Statistics said that consumer prices were unchanged in November. Once again, lower petroleum prices helped to ease inflationary pressures. Gasoline prices have fallen 2.9 percent and 1.6 percent in October and November, respectively. Indeed, the price of West Texas intermediate crude fell from an average of $106.29 per barrel in September to $100.54 and $93.86 per barrel in October and November, respectively. Total energy costs for consumers declined 1.0 percent in November.

The increase in energy prices was offset by modest gains in food and other costs. Food prices rose 0.1 percent in November, boosted by higher dairy prices and the cost of food away from home. At the same time, there were lower prices for cereals and bakery products, fruits and vegetables, meats and eggs, and nonalcoholic beverages.

Outside of food and energy, the largest monthly price increases were seen for shelter expenses and airline fares. In contrast, prices for apparel, hospital services, household furnishings and supplies, new vehicles, and tobacco and smoking products were lower in November.

Overall, consumer prices have risen by just 1.2 percent over the past 12 months. Core inflation – which excludes food and energy costs – has grown by 1.7 percent year-over-year. This suggests that pricing pressures remain quite modest, with core inflation running below the Federal Reserve’s stated target of 2 percent. In fact, core inflation has not exceeded 2 percent since July 2012.

The Federal Open Market Committee (FOMC) meeting begins today, with a decision on monetary policy coming tomorrow afternoon. There is some expectation that the Fed will announce a decision to start “tapering” (or reducing) its asset purchases at this meeting. I suspect that the FOMC will instead push this decision back to either the January 28–29 or March 18–19 meeting.

Improvements in the macroeconomy should serve as an incentive to begin to scale back its asset purchases, but very low current inflationary pressures give the FOMC the leeway to stand pat if it wants to wait and see more evidence of growth before acting. Either way, financial markets have once again begun pricing in a possible taper, with the average yield on 10-year Treasury notes rising from a recent low of 2.51 percent on October 23 to a close of 2.88 percent yesterday.

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

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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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Monday Economic Report – September 23, 2013

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

The headline of the week—by far—was the Federal Reserve’s decision to not pull back on its asset purchases, which most analysts had expected. Indeed, Chairman Ben Bernanke had been telegraphing the possibility of such a taper in the Fed’s quantitative easing program since the summer. In his Congressional testimony in July, the chairman said the following:

If the incoming data were to be broadly consistent with [modest growth and low inflation], we anticipated [at our June meeting] that it would be appropriate to begin to moderate the monthly pace of purchases later this year. And if the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear.

The Federal Open Market Committee (FOMC) voted to continue purchasing $85 billion in mortgage-backed and long-term securities each month. In doing so, the Fed felt that it needed “more evidence that progress will be sustained before adjusting the pace of its purchases.” In addition, the FOMC statement specifically referred to fiscal policy that is “restraining economic growth,” and Chairman Bernanke referenced the risks associated with political gamesmanship in funding the federal government and raising the debt ceiling. News of the Fed’s inaction sent long-term interest rates and the U.S. dollar somewhat lower.

The Fed also reduced its growth estimates for this year and next, with real GDP anticipated to increase 2.0 to 2.3 percent in 2013 and 2.9 to 3.1 percent in 2014. It also predicts inflation will remain under its 2.0 percent target. The latest consumer price data confirms that this is still the case for now, with core consumer inflation up 1.8 percent over the past 12 months. Producer prices have been similar.

Meanwhile, manufacturers continue to rebound from the softness seen mid-year. Production in the manufacturing sector rose 0.7 percent in August, with year-over-year growth of 2.6 percent. Much of that increase stemmed from automakers resuming production in August after slowing down in July to retool for the new model year. But, even beyond motor vehicles, the gains in output were fairly broad based. While this modest growth was still not as robust as we might like, it was definitely welcome news. The two Federal Reserve Bank surveys both showed expansion in their districts, but at clearly different paces. Manufacturers in the Philadelphia Fed region reported a surprisingly sharp increase in new orders and shipments, boosting optimism for the next six months. In contrast, activity decelerated in the New York Fed’s survey, with businesses more cautious.

Housing data were mixed, but not as negative as one might expect given higher mortgage rates. New residential construction climbed marginally (up from 883,000 in July to 891,000 in August). Although this is still lower than the peak seen in March, which started just more than one million units at the annual rate. Housing permits decreased, but new single-family unit permitting continued to grow, reaching a level not seen since May 2008. The volatility in housing continues to be at the multi-unit level (e.g., apartments, condos, etc.). At least for now, therefore, residential construction—particularly for single-family homes—continues to hold up, even as there are some signs of possible dampening. Existing home sales increased 1.7 percent in August, extending its 6.5 percent gain in July. But, there is some speculation that they might decline moving forward, with the jump in interest rates forcing some buyers to speed up their closings. For their part, home builders remain mostly positive.

This week, we will get even more data on the current health of the manufacturing sector. Markit will release Flash estimates for its purchasing managers’ indexes for the United States, China and the Eurozone this morning, and the expectation is for continued stabilization in China and in Europe, with modest gains in U.S. output. The Kansas City and Richmond Federal Reserve Bank districts will also release new sentiment surveys from manufacturers. Both had rebounded in their August reports, and we will be looking for continued expansion. Meanwhile, the Census Bureau will announce advance estimates for durable goods sales for August, which should recover from the significant decline observed in its July analysis. Beyond these reports, other economic highlights include the latest data on consumer confidence, new home sales, and personal income and spending.

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

yoy industrial production - sept2013

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Monday Economic Report – August 19, 2013

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

For much of the past few weeks, economic data seemed to show manufacturing activity picking up. This was welcome news given the weaknesses in the sector over the past year, especially during the spring. The data released last week tended to find that gains in output and sales might be smaller than hoped. Manufacturing production, for instance, declined by 0.1 percent in July, and the year-over-year rate continues to be a disappointing 1.3 percent. A broad spectrum of segments in the sector saw softness, with capacity utilization edging lower again—a downward trend that has occurred all year. In addition, surveys from the New York and Philadelphia Federal Reserve Banks found that sentiment had eased in both regions. While both districts continue to grow, the pace has decelerated this month.

These surveys also continue to reflect cautious optimism for the next six months, with generally higher expectations for new orders and production. Plans to increase hiring or capital spending were also predicted to be higher, albeit more modestly. Similarly, the National Federation of Independent Business’s (NFIB) optimism index was higher last month, with a slight increase in the percentage of respondents saying the next three months were a good time to expand. In fact, many key variables have reflected improvements in the past few months, even as earnings and overall sentiment remain subpar. Of those saying the next three months were not a good time for expansion, the economy and political environment were the main reasons.

Meanwhile, the University of Michigan and Thomson Reuters reported that consumer confidence was somewhat lower in August, with higher gasoline prices and borrowing costs most likely reducing optimism. Americans remain more confident today than they were at the beginning of the year; yet, they tend to react to pocketbook issues in general. So far, the reduced perceptions of the current economic environment has not altered consumer spending significantly. July’s retail sales figures were mostly higher. At the same time, higher interest rates have perhaps dampened monthly purchases in motor vehicles, home improvement, home furnishings and electronics. On the residential front, new housing starts and permits were higher in July, but single-family unit construction was marginally lower. While the prospects for growth in housing remain strong, the data suggest that higher mortgage rates probably will dampen activity moving forward.

On the pricing front, core consumer and producer inflation, excluding food and energy costs, continues to be under control—at least for now. Core prices remain below 2 percent on an annual basis, the stated goal of Federal Reserve Board policymakers. This has allowed the Federal Reserve to pursue “highly accommodative” monetary policies in an effort to stimulate economic growth. However, the producer price data report higher costs at the crude level, mainly stemming from recent petroleum increases. This could suggest accelerated prices in the coming months as these costs work through the production process.

This week, monetary policy will again come into focus with the release of the minutes from the Federal Open Market Committee’s July meeting and with news coverage of the annual symposium in Jackson Hole, Wyo. The Kansas City Federal Reserve Bank will hopefully show continued improvements in manufacturing activity in its region. On the international front, Markit will publish Flash Purchasing Managers’ Index (PMI) data for the Eurozone and China. Recent data have suggested some stabilization in both regions, including the announcement last week that real GDP in the Eurozone grew for the first time since the third quarter of 2011. Other highlights this week include data on existing and new home sales, leading economic indicators and state employment.

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

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Consumer Prices Ease on Lower Energy Costs in October

The consumer price index rose 0.1 percent in October, according to the Bureau of Labor Statistics. This is a slower pace than what was observed in August and September (with 0.6 percent higher inflation in both months) when energy prices were up sharply. In October, energy prices were down 0.2 percent, with gasoline prices off 0.6 percent. Food prices increased 0.2 percent, with higher dairy, meat, and fruits and vegetables pushing costs up.

Core inflation – which excludes food and energy costs – were up 0.2 percent. This was largely due to higher costs for services (up 0.3 percent). The average price of core goods has fallen for three consecutive months and was down 0.1 percent in October. Year-to-date core inflation is currently 2.0 percent, which is in-line with the goal set by the Federal Reserve Board and suggests modest price increases overall. Indeed, the minutes from the October Federal Open Market Committee meeting, which were released yesterday, read:

Participants saw recent price developments as consistent with inflation remaining at or below the Committee’s 2 percent objective over the medium run. Although energy prices had risen sharply in recent months, reflecting earlier increases in crude oil costs and supply disruptions, gasoline prices were anticipated to move back down in coming months as those pressures eased. Similarly, effects of the drought were expected to show through to retail food prices over the next few quarters but then subside. By various estimates, underlying inflation trends remained subdued, and indicators of longer-term inflation expectations were generally viewed as stable.

With inflation in-check (at least for now), the FOMC has been free to pursue more accommodative actions, helping to push interest rates to historic lows and attempting to stimulate economic growth. These policies are expected to continue moving into 2013.

Chad Moutray is chief economist, National Association of Manufacturers.

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Energy Lifts Consumer Prices in September

The consumer price index rose 0.6 percent in September, according to the Bureau of Labor Statistics. This matched the increase in August. Higher energy costs were the main contributor to the gains, with consumer energy prices up 5.6 percent and 4.5 percent for the past two months. Gasoline prices in September rose 7 percent, as we have seen a pickup in petroleum costs recently from the easing experienced earlier in the year.

Food prices rose 0.1 percent for the month. Higher nonalcoholic beverages prices (up 0.9 percent) were offset by declines in meat, poultry, fish and eggs (down 0.6 percent) and fruits and vegetables (down 0.4 percent). The food categories that were down represent some easing from prior months. Year-over-year food prices were up a modest 1.6 percent.

Excluding food and energy prices, core inflation from September 2011 to September 2012 was 2.0 percent. This is in-line with Federal Reserve Board targets, suggesting that pricing pressures are currently under control.

Note that the producer price index for September noted some higher food and energy costs at the intermediate and crude levels that will be forthcoming in future months. Even with these expected increases, inflation is expected to remain modest. If not, I would anticipate that the Federal Reserve Board might need to readjust. For the time being, though, they are more worried about slowing global and U.S. economic growth than they are about inflationary pressures.

Chad Moutray is chief economist, National Association of Manufacturers.

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