Tag: producer prices

Monday Economic Report – August 18, 2014

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

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

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

manufacturing production - aug2014

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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 Edge Lower in May, but Core Inflation Rose to 2 Percent

The Bureau of Labor Statistics said that producer prices for final demand goods and services decreased 0.2 percent in May, falling after a decent jump of 0.6 percent in April. May’s decline for goods producers came from lower food and energy costs, both of which decreased 0.2 percent for the month. Still, food prices remain elevated, with the lower May figure following sharp increases in both March and April. In fact, final demand food costs have risen 4.9 percent since December largely from higher prices for meat, dairy and egg products.

Meanwhile, final demand energy costs have been somewhat more volatile this year, up in January and February but lower in March, April and May. Year-to-date, energy costs for final goods have actually fallen 0.5 percent. With that said, intermediate demand for energy goods, which are used in the production process, increased 0.3 percent in May following sharp declines in both March and April. This was primarily due to higher petroleum costs, with West Texas intermediate crude costs up from $99.69 per barrel on April 1 to $103.40 a barrel on May 30. As a result, we will likely see higher final demand energy costs for June.

Looking at annual inflation rates, producer prices for final goods increased 2.0 percent between May 2013 and May 2014. This was slightly below the 2.1 percent pace observed in April, and it was only the second time since March 2012 that producer prices have equaled or exceeded 2 percent. Core inflation – which excludes energy and food costs – were unchanged for final demand goods in May; yet, the annual pace for core producer prices moved higher, up from 1.8 percent to 2.0 percent. It was the first time since December 2012 that core inflation was 2 percent or greater. The Federal Reserve strives to keep core pricing pressures at 2 percent or less.

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

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Monday Economic Report – May 19, 2014

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

There are numerous signs that global economic growth is lower than expected in 2014, with some disappointing data coming in last week. For instance, industrial production numbers were weaker in a number of countries, including slower industrial growth in China in April relative to just a few months ago and falling output in March in the Eurozone. Europe also learned that real GDP rose at the very slow pace of 0.2 percent in the first quarter, prompting new worries about sluggish income and labor market growth on the continent. Meanwhile, in the United States, the Federal Reserve reported that manufacturing production fell 0.4 percent in April. This followed relatively strong rebounds in February and March from winter-related softness in December and January. Still, output continues to reflect modest gains year-over-year, particularly for durable goods.

Despite April’s decline in industrial production, other data suggest that manufacturing activity in the United States appears to be recovering from earlier weaknesses. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks both show relatively strong expansions in their regions, even as the Philly Fed report eased a bit in May from April. New orders, shipments and employment reflected continuing expansion from the previous survey. More importantly, manufacturers in each district remained mostly upbeat about the next six months, with more than half of the respondents in both surveys anticipating new orders to increase moving forward. For their part, small business owners were also more optimistic, with the National Federation of Independent Business’s (NFIB) key index rising to its highest level since October 2007.

At first glance, the housing data released last week were also quite positive. Housing starts exceeded 1 million again for the first time this year, up from an annualized 947,000 units in March to 1,072,000 in April. New residential permitting was also higher. Yet, the bulk of April’s increases in both measures were primarily due to the more volatile multifamily housing segment. Single-family starts and permits were only marginally higher, but remain below the recent peaks last November. As such, there is perhaps more softness in the market than the headline figure indicated. (We will get existing and new home sales figures this week.) Indeed, homebuilder confidence fell to its lowest point in 12 months, with consumer anxieties cited as a concern. On the positive side, builders were somewhat more hopeful about future activity.

Consumer data were mixed. Retail sales increased 0.1 percent in April, extending the strong gains from February and March. Auto sales comprised much of April’s gains, with retail spending outside of motor vehicles unchanged from March. As such, consumers appeared to be somewhat cautious in April. This showed up in the latest consumer confidence data as well. The University of Michigan and Thomson Reuters reported that consumer sentiment edged slightly lower in May in its preliminary data, with Americans more concerned about current economic conditions. In terms of prices, consumer inflation has started to pick up slightly, led by higher food costs, but core pricing pressures remain below 2 percent at the annual rate, at least for now. A similar pattern was observed for producer prices.

This week, we will get more news on the health of the manufacturing sector worldwide, with flash Purchasing Managers’ Index (PMI) data from Markit for the United States, Europe, China and Japan. The Kansas City Federal Reserve will also release its latest sentiment survey. Finally, the Federal Open Market Committee (FOMC) minutes from its April 29–30 meeting will be released, providing some insights about current Federal Reserve debates. However, that meeting hardly produced any surprises, with the FOMC continuing to taper its asset purchases and the Federal Reserve’s forward guidance still pointing to short-term rate increases sometime next year.

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

yoy industrial production growth - may2014

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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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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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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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