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Economy in Brief

Producer Prices Unexpectedly Weak
by Tom Moeller July 15, 2005

The producer price index for finished goods was unexpectedly unchanged last month following the 0.6% decline in May which also was unexpected. Consensus expectations had been for a 0.4% rise in June. Excluding food & energy prices were also surprisingly weak, falling 0.1% versus the expectation for a 0.1% rise.

Prices for core finished consumer goods fell 0.1% (+2.4% y/y) due to to a 2.0% (NSA, +1.4% y/y) decline in passenger car prices. Consumer durable goods prices overall fell 0.4% (+0.5% y/y). Showing strength, core consumer nondurable goods prices rose 0.3% (3.8% y/y) but capital goods prices fell 0.2% (+2.1% y/y).

Finished energy prices rose 2.0% (13.1% y/y) while finished food prices fell 1.1% (+0.1% y/y).

Intermediate goods prices recovered 0.1% of the prior month's sharp drop as energy prices rose 1.9% (15.0% y/y). Pricing weakness, however, was indicated by the 0.2% decline in core intermediate goods prices.

Crude prices fell another 3.3% due to the 3.1% June decline crude energy prices which has since reversed. Core crude prices added 4.3% to the May decline. Iron & steel scrap prices fell 22.1% (NSA, -15.5% y/y). During the last thirty years "core" crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

Producer Price Index June May Y/Y 2004 2003 2002
Finished Goods 0.0% -0.6% 3.6% 3.6% 3.2% -1.3%
  Core -0.1% 0.1% 2.2% 1.5% 0.2% 0.1%
Intermediate Goods 0.1% -0.7% 6.1% 6.6% 4.6% -1.5%
  Core -0.2% -0.3% 4.9% 5.7% 2.0% -0.5%
Crude Goods -3.3% -2.0% 1.7% 17.5% 25.1% -10.6%
  Core -4.3% -3.6% 5.2% 26.6% 12.4% 3.8%
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