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Economy in Brief

U.S. PPI Posts Broad-Based Decline With Energy Prices Leading The Fall
by Tom Moeller August 18, 2009

Pricing power reflected the weakness in the U.S. economy last month as the PPI for finished goods fell 0.9%. That reversed half of the 1.8% jump during June and left prices down 6.4% from the year ago level. The decline also was deeper than Consensus expectations for a 0.3% drop. In addition, a 0.1% decline in PPI less food & energy contrasted with expectations for a 0.1% increase. That decline pulled the y/y change to 2.6% which was the weakest increase since early 2008.

Lower energy prices led the decline in last month's PPI with a 2.4% drop (-29.6% y/y) after increases during the prior two months. The July decline was led by a 10.2% fall in gasoline prices (-45.1% y/y) which reversed most of the increase during June. Working the other way, natural gas prices firmed again last month and posted a 3.3% (-30.9% y/y) increase.

The PPI for finished consumer goods less food & energy fell by 0.1% (+3.1% y/y) after a firm 0.5% jump during June. Finished durables prices reversed most of the June gain with a 0.5% decline (+2.7% y/y). Posting a moderate increase were prices of core finished nondurable goods. They gained 0.4% and the y/y increase of 3.5% is off from the 5.9% rise as of the end of last year. Capital equipment prices also reflected the weakness in demand and fell 0.2%. That pulled the y/y increase to 1.9% after a 4.3% rise as of last December.

Prices for intermediate goods ticked 0.2% lower led by a 2.0% decline in food prices (-15.0% y/y). That decline was in addition to a 1.4% drop (-34.5% y/y) in energy prices. Less food & energy, intermediate goods prices ticked 0.2% higher for only the second increase since last September.

The crude materials PPI reversed all of its June increase with a 4.5% decline. That was led by a 6.1% (-25.7% y/y) drop in food prices and a 6.2% decline in crude energy prices (-59.6% y/y). Core pricing power at the crude level improved for the third straight month and posted a 2.9% increase.

The producer price data is available in Haver's USECON database. More detailed data is in the PPI and in the PPIR databases.

Producer Price Index (%) July June Y/Y 2008 2007 2006
Finished Goods -0.9 1.8 -6.4 6.4 3.9 2.9
  Core -0.1 0.5 2.6 3.4 2.0 1.5
Intermediate Goods -0.2 1.9 -15.0 10.5 4.0 6.4
  Core 0.2 0.4 -8.2 7.4 2.8 6.0
Crude Goods -4.5 4.6 -45.0 21.4 11.9 1.4
  Core 2.9 2.6  -35.7 14.8 15.6 20.8
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