U.S. CPI Ticked Up

During February the consumer price index (CPI-U) rose for the first month since July, according to the U.S. Bureau of Labor Statistics. The 0.3% gain followed drops of 0.8% and 1.7% during December and November. Due to those earlier sharp declines the three-month rate of change remained quite weak at -8.4% (AR). The latest increase matched Consensus expectations.

A 1.7% rise in energy prices led last month's increase in the CPI after having been down during the previous five months. Gasoline prices reversed earlier declines with a 6.0% (-40.4% y/y) increase to an average of $1.79 per gallon of regular. Still moving lower last month, however, were fuel oil prices which fell 2.7% (-19.5% y/y).  It was their sixth consecutive monthly drop while prices for natural gas & electricity fell 0.8% m/m (+7.2% y/y).

Increases in food & beverage prices have very much tapered off from their strong gains earlier this year.  A 0.1% uptick followed a like gain during December. That pulled the three month annual rate of increase down to 1.4% after growth as high as 8.7% this summer.  Outright declines in meat and dairy product prices as well as much easier growth in cereal & bakery product costs account for the moderation.

Core prices (CPI less food and energy) showed their strongest increase since August with a 0.2% rise.  However, despite the increase the year-to-year gain of 1.7% remained its weakest since mid-2004. Little or no growth in core prices during the prior four months accounts for the moderation.

Core goods prices rose for the first time since July.  The 0.3% increase reversed the prior month's decline but nevertheless left the three-month rate of change at a negative 0.9%. Prices of new & used motor vehicles increased for the first time in a year, but the 0.2% rise left them down 3.2% during that period.  Lower prices of used cars paced the decline with a 9.2% twelve month decrease.  Apparel prices ticked up 0.3% (-0.9% y/y) while prices for household furnishings & operations ticked lower by 0.1% (+1.8% y/y).  Appliance prices were up 2.0% y/y while furniture prices were unchanged y/y.  Tobacco prices again were strong during January and they posted a 0.8% increase (+6.1% y/y).

Gains in core services prices continued moderate with a 0.2% increase That left the three-month rate of increase at 1.6% (AR) after growing at a 3.9% rate this past summer.  Medical care services prices rose 0.5% (3.0% y/y) which was their strongest increase in twelve months.  Education costs posted a 0.3% increase and the year-to-year rise of 5.5% was stable with the growth in recent years, though down from the 6.9% increase during 2004. Shelter prices rose 0.2% and the y/y increase fell to 1.8%. As the housing market remained deeply depressed, owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3% (2.2% y/y).  Public transportation prices fell hard for the fifth consecutive month and were unchanged year-to-year.  Recreation prices also were unchanged last month and they have been flat or down during the last there periods, +1.6% y/y.

The chained CPI, which adjusts for shifts in consumption patterns, rose 0.5%, the first increase since July.  Less food and energy, chained prices rose 0.2% after two months of 0.3% decline.

The consumer price data is available in Haver's USECON database while detailed figures can be found in the CPIDATA database.

House Prices and Bank Loan Performance from the Federal Reserve Bank of San Francisco can be found here.

Labor Supply Responses to Changes in Wealth and Credit also from the Federal Reserve Bank of San Francisco is available here. 

The European PMI readings are very weak again in February. In January there was a slight bounce in the indices for MFG as well as for Services but in February the weakness is back in force with the indices dropping very sharply - especially for Services. There the month-to-month drop form this already low level is the largest decline m/m on record.

Weakness in the Euro Area is still gathering pace, which is terrible news.

Germany, today saw its 50 billion euro stimulus plan go over its last hurdle. Italian industrial orders fell in December but by less than expected. December UK retail sales rose unexpectedly. But in France its survey by Insee produced its lowest reading in the history of the survey that extends back to the mid-1970s. Europe is continuing to be buffeted with weakness and the more topical the measure the weaker the results seem to be.

The latest figures from the Philadelphia Federal Reserve Bank show that the February Business Activity Index fell further to its lowest level since 1990 and that rivaled the lows of the series' forty year history. The bank reported that its February Index of General Business conditions in the manufacturing sector fell to -41.3 from 24.3 last month. A reading of -25 had been expected.

During the last ten years there has been a 70% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 64% correlation with q/q growth in real GDP.

The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub-indexes. The business conditions index reflects a separate survey question.

Amongst the sub-indexes, the new orders figure led this month's weakness with a decline to near the lowest since 1980. The shipments index fell to a record low.

The employment index fell another 6.8 points this month, and was down 17.2 points during the last two months, to a record low. Forty eight percent of respondents expected to reduce employment levels, a record, while only two percent expected to raise them. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.

The prices paid index nudged up month-to-month to -13.7 but just thirteen percent of respondents planned to raise prices. Thirty two percent expected to lower prices. During the last ten years there has been a 72% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 80% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months improved to its highest level since September. The expectations index for new orders led the gain but the expectations index for employment rose just marginally from the record low reached in January.

The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database.

The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found here.