Tag: PPI

Higher Energy Costs Pushed Producer Prices Up in June

The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.4 percent in June, rebounding from the 0.2 percent decline in May. June’s higher figure stemmed largely from a sharp jump in the cost of finished energy goods, which increased 2.1 percent in the month. Middle East tensions in Iraq were largely to blame for this increase. Indeed, the cost of West Texas intermediate crude oil jumped from $99.69 per barrel on May 1 to $103.07 on June 2 to $106.07 on June 30. (The price of oil has fallen since then, closing at $100.75 a barrel yesterday.)

One of the other major drivers of price increases this year has been food; yet, the cost of finished food goods have fallen in the past two months by 0.2 percent each time. Still, food costs have risen 4.6 percent year-to-date on higher prices for meat, vegetables, dairy, and egg products. The lower costs in June reflect some easing in the price growth for those products.

Beyond food and energy, core producer prices for final demand goods increased 0.1 percent in June. The largest increases were seen in industrial chemicals, cigarettes, commercial and industrial products, construction machinery and equipment, sporting and athletic products and truck trailers. These were offset by declines in prices for jewelry, mining machinery, motor vehicle parts, railroad equipment, toys and games and travel trailers and campers, among others.

On an annual basis, producer prices for final demand goods and services rose 1.9 percent over the past 12 months. This was slightly lower than the 2.0 percent pace observed in May, but it remains higher than the 1.1 percent rate experienced in December. Meanwhile, core inflation – which excludes food and energy costs – increased 1.7 percent between June 2013 and June 2014. This suggests that producer prices have decelerated somewhat from 2.0 percent growth rate seen the month before.

In general, we have seen a pickup in costs this year, and the Fed will keep an eye on pricing pressures moving forward. Nonetheless, the decline in June has provided a welcome respite from increases seen earlier in the year.

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

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Producer Prices Move Higher, Particularly for Food, But Core Inflation Remains In-Check for Now

The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.6 percent in April, building on the 0.5 percent gain of March. April’s increase was the fastest pace of monthly input price growth since February 2013. The bulk of the jump in producer prices over the past two months has stemmed from higher food costs, which rose 1.1 percent  and 2.7 percent, respectively, in March and April. The largest increases were in meat and dairy prices. Indeed, the cost of final demand food goods have increased a whopping 5.1 percent year-to-date.

Meanwhile, energy costs edged slightly higher in April, up 0.1 percent, following a 1.2 percent decline in March. Over the course of the first four months of 2014, final demand energy costs have fallen by a very modest 0.2 percent, with year-over-year growth of 3.8 percent. For the most part, energy costs have mostly stayed in-check so far this year overall.

Excluding energy and food, core producer prices for final demand goods rose 0.3 percent.  Some notable price increases in April included costs for light motor trucks and textile machinery and equipment. In contrast, there were decreases in the costs for floor coverings, oil field and gas field machinery, silverware and hollowware, tires, among others.

The bottom line is that core inflation remains relatively minimal despite increased producer prices in March and April, particularly for food items. On a year-over-year basis, core producer prices for final demand goods (which exclude energy and foods items) was 1.5 percent in April, up from 1.2 percent in March. Core input prices have remained below the Federal Reserve’s threshold of 2 percent for 23 straight months. This allows the Federal Open Market Committee to continue its accommodative measures to stimulate the economy.

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

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Producer Prices Edge Higher, but with Inflationary Pressures Still Minimal

The Bureau of Labor Statistics said that producer prices for final demand goods and services rose 0.2 percent in January. This was the fastest pace in three months, and the gains were larger for goods (0.4 percent) than for services (0.1 percent). On an annualized basis, producer prices for final demand goods and services rose 1.2 percent in January, only marginally higher than the 1.1 percent pace observed in December.

Specific to final demand goods, food costs were up sharply, rising 1.0 percent for the month, ending two straight months of declines. Increased prices for vegetables, meats, seafood, and dairy products pushed food costs up in February. At the same time, energy costs rose 0.3 percent, extending the 1.5 percent increase the month before. Colder weather likely impacted this result, with energy costs lifted by higher prices for electricity, natural gas and liquefied petroleum gas.

Excluding energy and food, core producer prices for final demand goods rose 0.4 percent, its fastest gain in more than one year. The largest increases were seen for agricultural machinery, cosmetics, floor coverings, pharmaceuticals, and sporting and athletic goods.

Core inflation for goods and services at the final demand level remained minimal, up just 1.4 percent from January 2013 to January 2014. The significance of this figure is that remains well below the Federal Reserve’s threshold of 2 percent, allowing the Federal Open Market Committee to continue its accommodative measures to stimulate the economy. In fact, the year-over-year pace has stayed below 2 percent each month since December 2012.

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

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After Two Months of Declines, Producer Prices Rose in December

The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.4 percent in December. This follows declines of 0.2 percent and 0.1 percent in October and November, respectively. On a year-over-year basis, producer prices have risen 1.2 percent since December 2012. This suggests a bit of pickup in the annual rate, up from 0.3 percent in October and 0.7 percent in November.

Nonetheless, pricing pressures remain quite minimal for the most part. Year-over-year core inflation, which excludes energy and food costs, was 1.4 percent in December, up from 1.3 percent in November. Note that the annual pace of price increases has been below 2 percent – the stated goal of the Federal Reserve – for all of 2013. This frees the Fed to pursue highly accommodative monetary policies to stimulate growth, with worries about inflation reduced (at least for now).

The increase in producer prices in December was due to higher energy costs. The price of finished energy goods increased 1.6 percent in December, up primarily from diesel fuel and home heating oil. Crude energy costs were also higher, up 6.2 percent, on increased petroleum costs. Indeed, the cost of West Texas intermediate crude oil rose from $92.55 per barrel at the end of November to $98.17 at the end of December. In contrast to energy, food costs were off 0.6 percent in December, with vegetable prices leading the data lower.

For manufacturers, there were modest gains in raw material costs, up 0.3 percent in December. Yet, overall pricing pressures have been minimal over the course of the past year, with producer prices in the manufacturing sector rising just 0.6 percent over the past 12 months.

Nonetheless, there were some sector that experienced more rapid changes in input cost in December than the overall  average suggests. The largest increases in monthly raw material costs were seen in the following sectors: wood products (up 4.5 percent), leather and allied products (up 3.9 percent), paper products (up 3.1 percent), nonmetallic mineral products (up 2.9 percent), plastics and rubber products (up 2.4 percent), beverages and tobacco (up 2.0 percent), apparel (up 1.7 percent), textile products (up 1.6 percent), chemicals (up 1.3 percent), and machinery (up 1.2 percent). Still, these shifts mostly reflect some recent volatility in the data, with annual rates of change that were more consistent with the overall year-over-year average.

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

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Monday Economic Report – December 16, 2013

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

In the most recent NAM/IndustryWeek Survey of Manufacturers, 78.1 percent of respondents were either somewhat or very positive about their own company’s outlook. This figure has edged higher each quarter in 2013—a feat made easier by the fact that we were grappling with the prospect of the fiscal cliff at this point last year. As we move into 2014, manufacturing leaders anticipate mostly modest growth in a number of indicators, with an average sales increase of 3.0 percent expected over the next 12 months. While this estimate remains well below the 4.7 percent annual increase predicted in the first quarter of 2012, the good news is that the underlying data are consistent with a pickup in activity in the first half of next year.

However, manufacturers continue to worry about the effects of rising health insurance costs, a perceived unfavorable business climate and persistent uncertainties stemming from the government. On the topic of the Affordable Care Act (ACA), more than three-quarters of manufacturers have had their insurance costs increase by at least 5 percent for 2014, with an average increase of 8.76 percent. This was true even after many firms took steps to lower premium increases by raising employee copays (58.6 percent), reducing coverage (27.7 percent) and/or changing insurance providers (17.6 percent). Moreover, rising health insurance costs and uncertainties surrounding the ACA have forced one-third of manufacturers to reduce their outlook for next year, and a sizable percentage had reduced employment or stopped hiring (23.1 percent) and/or reduced or slowed down their business investment (20.2 percent). Beyond this, the NAM estimates the ACA will cost manufacturers at least $22.2 billion over the next three years to cover new fees, taxes, surcharges and administrative compliance costs required by the law.

Unfortunately, the NAM/IndustryWeek survey also suggested that many manufacturers remain hesitant about adding new workers. Over the next 12 months, employment is expected to grow by just 0.9 percent, with more than half of respondents saying they do not plan to change their employee levels in the next year. Despite this finding, there is some evidence that manufacturing employment has begun to improve, mirroring the recent uptick in new orders and output. The most recent jobs numbers suggest that the sector added an average of 16,500 workers from August to November, which would be progress from employment losses from March to July. Likewise, we learned last week that manufacturing job openings rose to their highest level in 16 months. While the pace of job postings and overall hiring remain lower than we might prefer, these numbers provide some encouragement—at least for now.

Other economic indicators released last week were also somewhat reassuring. Retail sales were up 0.7 percent in November, or 4.7 percent year-over-year. In addition, a survey of business economists found that they expect real GDP to accelerate to 2.8 percent in 2014, up from the 2.1 percent anticipated in 2013. For manufacturers, they predict that industrial production will expand from 2.4 percent in 2013 to 3.1 percent in 2014. Meanwhile, the National Federation of Independent Business (NFIB) reported that small business optimism edged higher in November, rebounding slightly after drops in September and October due to the government shutdown. While sales and earnings figures remained weak, the NFIB data did provide some signs of progress, including more small business owners saying it was a good time to expand.

Much of the focus this week will be on the Federal Reserve, which will have its final monetary policy meeting of the year. There is some speculation that the Federal Open Market Committee (FOMC) will announce its long-awaited plans to start tapering its purchases of long-term and mortgage-backed securities. 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 2.87 percent on Friday.

This morning, we will get the latest data on industrial production for November, and Markit will announce Flash PMI data for the United States, China and the Eurozone. The expectation is these reports will reflect a decent increase in output, mirroring the acceleration in other data. We will also get new surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks this week, providing further evidence about the current state of the manufacturing sector regionally. On Friday, the Bureau of Economic Analysis will give us another revision to third-quarter real GDP, which was estimated to have grown by 3.6 percent in its most recent release. In addition, other highlights this week include new data on consumer prices, housing starts, leading indicators, productivity and state employment.

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

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Producer Prices Continue to Ease, Down for the Third Straight Month in November

The Bureau of Labor Statistics reported that producer prices for finished goods were down 0.1 percent in November, extending the declines observed in September and October. On a year-over-year basis, producer prices have risen just 0.7 percent, illustrating the extent to which inflationary pressures have become so modest.

The decrease was once again largely attributable to reduced energy costs. The price of finished energy goods were off 1.5 percent and 0.4 percent in October and November, respectively. Gasoline prices were down 3.8 percent and 0.7 percent in those same months. 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. The producer price index data reflect this decline with energy costs declining at the intermediate and crude levels, as well.

The cost of food was unchanged in November. Increased producer prices for beef, eggs, pork, and turkeys were offset by lower costs for bakery products, chickens, fruits, vegetables, and shortenings.

For manufacturers, raw material costs were down 0.6 percent in November, with input prices off 0.1 percent over the past 12 months. As such, the manufacturing sector continues to benefit from the recent deceleration in pricing pressures.

With that said, on a year-over-year basis there were a few instances where producer price increases have been somewhat significant. For instance, there were following manufacturing sectors experienced the largest increases in costs over the past 12 months: wood products (up 5.5 percent), leather and allied products (up 3.8 percent), nonmetallic mineral products (up 3.0 percent), paper (up 3.0 percent), plastics and rubber (up 2.3 percent), textile product mills (up 2.0 percent), and apparel (up 1.8 percent). Petroleum and coal products experienced the largest year-over-year decline in costs (down 4.0 percent) on reduced crude prices, with primary metals (down 2.0 percent) and food (down 1.3 percent) manufacturers also having lower costs over the past year.

In conclusion, this data is further evidence that inflation is not a significant problem, at least for right now. The Federal Reserve will meet next week to discuss monetary policy changes (where it may or may not begin tapering its asset purchases), and it will be encouraged by the fact that prices have stayed well below its target of 2 percent or less. The annual rate of core inflation – which excludes food and energy costs – was 1.3 percent according to this report, down from 1.4 percent the month before.

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

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Higher Food and Energy Costs Push Producer Prices Up Modestly in August

The Bureau of Labor Statistics reported that producer prices for finished goods were up 0.3 percent in July. This compares to being unchanged the month before. This was largely due to higher food and energy costs, which rose 0.6 percent and 0.8 percent for the month, respectively.

The rise in energy prices can best be summed up by looking at the average of West Texas intermediate crude costs, which have increased from $95.77 on average per barrel in June to $104.67 in July to $106.57 in August. On the food side, the largest gains were seen in the cost of fresh and dry vegetables.  Without food and energy costs included, core inflation in August was unchanged.

For manufacturers, raw material costs were up 0.6 percent in August. They had fallen 0.2 percent in July, and over the past 12 months, producer prices in the sector have increased only 0.4 percent. As such, the manufacturing sector has benefited from the recent slowdown in pricing pressures.

With that said, there were pockets in the manufacturing industry that did experience some sizable monthly gains in prices. These manufacturers included the following sectors: wood products (up 5.3 percent), leather and allied products (up 4.8 percent), paper (up 3.3 percent), nonmetallic mineral products (up 3.0 percent), plastics and rubber products (up 2.5 percent), textile product mills (up 2.1 percent), beverages and tobacco (up 2.0 percent), and chemicals (up 1.5 percent). Over the past 12 months, though, most of those sectors have seen small changes in costs, making these gains less dramatic than they might first appear.

Overall inflation continues to be very modest, with producer prices up 1.4 percent on a year-over-year basis. This is down from the 2.5 percent annual pace observed in June. When you exclude food and energy costs, the annual rate of core inflation was just 1.2 percent in August, down from 1.6 percent in June.

The key takeaway is that pricing pressures remain below the two percent threshold set by the Federal Reserve. With the Federal Open Market Committee meeting on September 17-18 next week, policymakers will continued to be encouraged that inflation remains in-check. This will free them up to continue to pursue expansionary monetary policies, even if they begin to slow their asset purchases somewhat.

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

PPI

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Producer Prices Take a Respite After Energy Cost Gains in May and June

The Bureau of Labor Statistics reported that producer prices for finished goods were unchanged in July. This follows 0.5 percent and 0.8 percent gains in May and June, respectively. Higher energy prices were largely behind the increases in the producer price index (PPI), with finished energy goods prices up 1.3 percent and 2.9 percent in those two months in turn. In July, energy costs were off 0.2 percent, which is a welcome respite.

With that said, producer prices for crude goods were up 1.2 percent, with higher crude petroleum costs being the main contributor (up 10.6 percent). This is consistent with the recent rise in West Texas intermediate crude oil costs, which have risen from an average of $93.80 a barrel in June to $104.61 in July. The cost is currently over $106 per barrel. This suggests that that producer prices for finished goods should increase in the coming months as those energy costs work their way through the production process.

Overall inflation continues to be very modest, currently 2.1 percent at the year-over-year rate. When you exclude food and energy costs from the analysis, the annual rate of core inflation was just 1.2 percent in July, below the 1.6 pace of June. This is below the key threshold of 2 percent, which is desired by the Federal Reserve Board. As such, at least for now, pricing pressures appear to be in-check.

This is true for manufacturers, as well. Input costs were down 0.2 percent in July, with raw material prices up 1.5 percent over the course of the past 12 months. Manufacturing raw material costs have accelerated somewhat since May, when the annualized pace was just 0.3 percent, but they remain in the acceptable range for the most part. In July, the largest swings in prices were seen in the leather and allied products (up 0.6 percent), chemicals (down 0.5 percent), petroleum and coal products (down 0.7 percent), primary metals (down 0.5 percent), and wood products (down 1.0 percent) sectors.

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

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Producer Price Increases Pickup in June, Building on May’s Gains

The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.8 percent in June, building on the 0.5 percent gains of May. As such, we have seen a bit of a rebound in pricing pressures, particularly as energy costs have risen. Prices for finished energy goods were up 1.3 percent in May and 2.9 percent in June, but to be fair, these increases followed several months of declines. At the same time, food costs have also risen in the past two months, up 0.6 percent and 0.2 percent, respectively. The largest increases in June stemmed from higher meat prices.

On an annualized basis, producer prices for finished goods have grown 2.5 percent. This is the fastest pace in raw material pricing pressures since March 2012. Nonetheless, core inflation still remains in-check. When you exclude energy and food from the analysis, core producer prices increased 0.2 percent in June and 1.6 percent year-over-year. This is below the Federal Open Market Committee (FOMC) of the Federal Reserve Board’s stated target of 2 percent or less. As such, the FOMC should continue to feel free to pursue its “highly accommodative” policies. That will be true whether or not the Fed “tapers” its asset purchases later this year.

For manufacturers, producer prices were up just 0.1 percent in June or 1.4 percent over the past 12 months. This represents a pickup in pricing pressures from May, when the annualized pace was just 0.3 percent. Still, it would still be in the acceptable range for many manufacturers, at least for now. The fastest monthly growth was seen in the paper (up 0.7 percent), food (up 0.6 percent), textile products (up 0.5 percent), leather products (up 0.5 percent), and beverage and tobacco (up 0.4 percent) manufacturing sectors. In contrast, the largest decline was seen in the paper products manufacturing sector, down 0.8 percent in June but still up 6.7 percent for the year.

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Producer Prices Rise on Higher Energy Costs in February

The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.7 percent in February, its fastest pace since September. The main driver of the higher number was increased energy prices, which were up by 3.0 percent for the month. This corresponds to a rise in average petroleum prices from $88.25 per barrel in December to $95.32 in February.  Intermediate and crude energy costs were also higher, suggesting that these costs will continue to flow through the process to finished goods in coming months.

Lower food costs at the finished goods level helped to ease the pain of increased energy prices. The prices of finished food products fell 0.5 percent in February, largely on lower costs for vegetables, eggs, and some meats.

Overall core inflation – which excludes food and energy costs – rose 0.2 percent in February, the same pace as the month before. Core inflation is currently operating at a 1.7 percent annual pace, down from 1.8 percent in January. This continues to keep pricing pressures below the Federal Reserve’s stated target of maintaining core inflation at 2 percent or less. As such, inflationary pressures remain in-check, at least for now.

With that said, producer prices for manufacturers have accelerated in the past month. Raw material costs for the sector increased 1.5 percent, and the year-over-year rate was 1.4 percent. The annual pace has picked up in February, as it had been 0.3 percent in January. The manufacturing industries with the greatest price increases were wood products (up 8.8 percent), leather and allied products (up 4.2 percent), food manufacturers (up 2.9 percent), and beverages and tobacco (up 2.7 percent). Decreases in input prices, though, were seen in the primary metal (down 5.9 percent), textile mills (down 0.6 percent), and computer and electronic products (down 0.3 percent) manufacturing sectors.

Chad Moutray is chief economist, National Association of Manufacturers.

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