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Economy in Brief

U.S. Finished Goods PPI Rises Modestly; "Downstream" Pricing Remains Weak
by Tom Moeller March 17, 2009

U.S. producer prices for finished goods increased a modest 0.1% last month. The slim gain offset last month's upside surprise of 0.8%, which was unrevised. Moreover, it contrasted with Consensus expectations for a 0.4% gain.

Much of the reason for the latest moderation was a slimmer 0.2% rise in prices less food & energy which followed the strong 0.4% January increase. A 0.1% has been expected. Prices of core finished consumer goods rose 0.4% last month (4.1% y/y). Durable consumer goods prices increased 0.2% (3.0% y/y) while core nondurable goods prices increased another firm 0.5% (5.1% y/y). Finally, the gain in monthly capital equipment prices eased to 0.1% after a 0.5% January jump but the 3.7% increase y/y remained the strongest since 1991.ยท A 1.3% increase (-19.3% y/y) in finished energy prices moderated from the 3.7% rise during January. The rise in gasoline prices moderated to 8.7% from a 15% spike in January (42.4% y/y) and home heating oil prices reversed all of their January increase with a 7.2% decline (-46.4% y/y). Natural gas prices fell 3.61% (-2.4% y/y).

Prices for finished foods continued weak and they posted a 1.6% decline (+0.9% y/y), the third consecutive down month. The drop was led by lower meat (-3.8% y/y) and dairy product costs (-15.3% y/y).

Prices for intermediate goods continued downward and continued to hold promise for weaker finished goods prices. Intermediate goods prices fell 0.9% during February and are down 5.6% year-to-year, the weakest since 1949. Excluding food & energy, prices also were quite weak dropping 0.6%, the fifth consecutive monthly decline. The 0.1% y/y decline was the weakest comparison since 2002.

The crude materials PPI fell with the economy's loss of momentum. The 4.5% decline in the total was led by an 8.5% drop (-48.3% y/y) in energy prices. Crude food prices continued lower by 3.9% (-19.5% y/y) after the brief 1.0% rise during January. Less food & energy, January crude prices rose by 1.5% on the strength of higher metals prices.

The Producer Price Index data is available in Haver's USECON database. More detailed data is in the PPI and in the PPIR databases.

Foreign Direct Investment, Productivity, and Country Growth: An Overview from the Federal Reserve Bank of St. Louis is available here

Producer Price Index (%) February January Y/Y 2008 2007 2006
Finished Goods 0.1 0.8 -1.6 6.4 3.9 2.9
  Core 0.2 0.4 3.9 3.4 2.0 1.5
Intermediate Goods -0.9 -0.7 -5.6 10.5 4.0 6.4
  Core -0.6 -1.1 -0.1 7.6 2.8 6.0
Crude Goods -4.5 -2.9 -34.7 21.2 11.9 1.4
  Core 1.5 0.1  -29.4 15.0 15.6 20.8
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