Tag: producer prices

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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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.

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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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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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Monday Economic Report – June 17, 2013

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

In the first five months of 2013, manufacturing production has been virtually unchanged, according to the Federal Reserve Board, and capacity utilization in the sector edged lower from 76.4 percent in December to 75.8 percent in May. Production among manufacturers increased 0.1 percent in May, or up 1.7 percent year-over-year. The latest NAM/IndustryWeek Survey of Manufacturers predicted that the annual pace of production activity should increase to 2.8 percent by the fourth quarter of 2013. Manufacturing production will need to pick up for that to be true. Manufacturing export numbers have been soft, with higher taxes and across-the-board spending cuts dampening demand.

Regarding the NAM/IndustryWeek survey, manufacturers anticipate sales to increase 2.7 percent on average over the course of the next year. While this is higher than the 2.3 percent growth rate observed three months ago, it is below the 4.3 percent pace of 12 months ago. Larger businesses were more optimistic about sales and their company’s outlook than their small and medium-sized counterparts, with all respondents predicting sluggish hiring growth over the next year. The top concern, cited by 82.2 percent of respondents, was the rising cost of health insurance. The average health insurance premium increase in 2013 was 8.6 percent, with a 13.9 percent jump on average anticipated for 2014. The 2014 numbers suggest just how much uncertainty there is regarding insurance rates, with the perception they will go up significantly. I spoke about this survey and the general state of manufacturing on CNBC’s “Squawk Box” last Tuesday. (continue reading…)

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Pricing Pressures Continue to Ease

The Bureau of Labor Statistics reported that producer prices for finished goods dropped 0.8 percent in November, adding to the 0.2 percent decline seen in October. The principal driver of the lower figure in November was the 4.6 percent decline in energy costs. Specifically, the price of gasoline fell over 10 percent for the month, helping to ease pricing pressures for businesses.

In contrast, food costs were up 1.3 percent, rising for the sixth consecutive month. Higher beef prices (up 8.2 percent) were largely responsible for the increase in finished food goods prices.

The bottom line is that the year-to-date change in producer prices for finished goods has fallen to 1.4 percent, from 2.3 percent in October and higher figures earlier in the year. With lower energy costs especially, we have seen these year-over-year rates decline from 4.2 percent in January to as low as 0.5 percent in July. Meanwhile, core producer prices – which exclude food and energy – are currently up 2.2 percent over the past 12 months. This also reflects significant easing, as core rates began the year at a 3.1 percent pace.

Manufacturers have benefits from a slower pace of growth for raw material prices. Producer prices were down 1.2 percent for the manufacturing sector in November, and over the past year, these costs have risen just 1.0 percent. The largest decline in costs was seen in the petroleum and coal products sector, which was down 7.8 percent. In contrast, the paper manufacturing sector had the largest increase for the month, with input costs up 0.9 percent.

Overall, these figures show that producer prices have slowed considerably over the past few months. As noted in yesterday’s Federal Open Market Committee statement, the Federal Reserve is currently less worried about inflationary pressures than about downward risks to economic growth and employment. That is why it continues to pursue extremely accommodative policies to attempt to stimulate growth. With prices in control for now, the Fed feels that it has the ability to focus on its employment targets, at least for now.

The Bureau of Labor Statistics will release consumer price index data tomorrow, which are largely expected to mirror those at the producer level.

Chad Moutray is chief economist, National Association of Manufacturers.

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Pricing Pressures Ease in October

The Bureau of Labor Statistics reported that producer prices for finished goods fell 0.2 percent in October, its first decline since May. This follows two months of stronger growth in raw material costs – particularly for energy goods – with the producer price index (PPI) up 1.7 percent and 1.1 percent in August and September, respectively. The reversal in October was largely due to lower energy costs, down 0.5 percent for the month. Food prices rose 0.4 percent.

Core prices, which excludes food and energy costs , also declined by 0.2 percent in October. This helped push the year-over-year core inflation rate to 2.1 percent, down from 2.8 percent six months ago or 2.3 percent in September. This suggests that overall pricing pressures continue to ease and remain modest overall, and they are near the Federal Reserve Board’s key target of 2 percent or less.

Manufacturers have benefited from this easing of inflationary pressures, with the cost of raw materials in the sector also down 0.2 percent. Since October 2011, these costs have risen just 2.5 percent. The largest decline in costs was seen in the petroleum and coal products sector, which was down 2.5 percent on lower per barrel petroleum prices. In contrast, transportation equipment manufacturers had the greatest monthly increase in costs, up 1.2 percent.

Costs for intermediate goods were down 0.1 percent for the month; whereas, crude goods prices were up 0.9 percent. At the crude level, higher costs were attributed to increased natural gas and food and feedstock prices. When you look at core crude goods (excluding energy and food), they were lower (down 1.4 percent) on reduced metals costs.

Chad Moutray is chief economist, National Association of Manufacturers.

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Raw Material Prices Continue to Ease for Manufacturers

The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.3 percent in July. This suggests a slight pickup in prices from the 0.1 percent gain of June. With that said, energy costs at the finished and intermediate levels continued to move lower. The main driver of higher producer prices this month was food, which rose 0.5 percent for finished goods this month. The price of meat – particularly beef and pork – was up significantly. 

Core prices – which exclude food and energy costs – rose 0.4 percent in June, and they have risen 2.6 percent over the course of the past year. This year-over-year figure suggests that overall inflationary pressures have eased appreciably since earlier in the year.

One of the primary forces behind this easing has been lower petroleum costs. For manufacturers, this has coincided with reduced raw material prices over the past few months. In July, producer prices for manufacturers dropped 0.6 percent, the fourth straight month of declines. Since July 2011, raw material costs have fallen 0.4 percent.

As noted, the leader was the petroleum and coal products manufacturing sector, with 4.1 percent lower costs last month and 9.9 percent lower year-over year. Other sectors with declining costs included primary metals (down 1.8 percent) and textile mills (down 0.8 percent). At the same, beverage and tobacco (up 1 percent), textile product mills (up 0.6 percent), food (up 0.5 percent), and nonmetallic mineral product (up 0.5 percent) manufacturers had higher raw material costs.

Costs for intermediate goods were 0.9 percent lower; whereas, crude materials were 1.8 percent higher. Crude food and energy costs were higher, which should translate into higher overall costs in the coming months as they move through the production process toward finished goods.

Overall, while producer prices were higher in July, these gains were mostly isolated in specific sectors. The larger trend of easing continues to be the case, especially for manufacturers.

Chad Moutray is chief economist, National Association of Manufacturers.

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