U.S. Finished Goods PPI RisesModestly; "Downstream" Pricing Remains Weak

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.· 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. 

The severe downturn in housing starts took a breather last month as starts of multi-family homes nearly doubled. The Commerce Department indicated that total housing starts for February rose 22.2% from January to 583,000 (AR). January starts were revised up slightly and the latest figure compares to Consensus expectations for 450,000 starts.

Starts of multi-family homes rose 82.3%. That followed four consecutive months of sharp decline and returned starts to the highest level since October.

More indicative of the condition of the housing market is starts of single-family homes. Though they rose 1.0% last month to 357,000 (AR), starts remained near the record low for the series which dates back to 1959. The latest level is down eighty percent since the peak in early 2006. Permits to build single-family homes, a leading indicator of starts, rose and reversed their January decrease. However, they remained off by more than one-third over just the last three months. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.

By region, starts of single-family units in the Northeast reversed their January collapse and rose by 54.2%. Nevertheless, that gain left them still off by nearly one half from the year ago level. Starts in the Midwest rose a lesser 12.8% (-51.8 % y/y) after their sharp 21.7% January falloff. In the South, starts also reversed the January decline and rose a modest 2.5% (-45.7% y/y). In the West, starts ran counter to the m/m trend in the rest of the country and fell by nearly one quarter (-62.7% y/y). That followed a slight January increase.

The housing starts figures can be found in Haver's USECON database.

Quick Exits of Subprime Mortgages from the Federal Reserve Bank of St. Louis is available here.

Facts and Myths about the Financial Crisis of 2008 from Federal Reserve Bank of Minneapolis is available here.

Regular gasoline prices dipped last week to $1.91 per gallon. That's at the bottom end of the $1.89 to $1.96 range in place since early February. Nevertheless the latest was up 30 cents from the December low. Yesterday, the spot market price for regular gasoline rose from Friday to $1.27 per gallon, up from $1.20 averaged last week. These prices compare to those that were slightly below $1.00 at the end of last year. The figures are reported by the U.S. Department of Energy.

Weekly gasoline prices can be found in Haver's WEEKLY database. Daily prices are in the DAILY database.

Gasoline demand has recovered due to the earlier declines in prices. The latest y/y change of -0.8% moderated from the 4.8% rate of decline seen last October. (Gasoline prices at the time were just off their peak.) The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 2.1% y/y after the -8.0% comparison last October. These numbers are available in Haver's OILWKLY database.

The rise in gasoline prices reflects the modest firming of crude oil prices. For a barrel of West Texas Intermediate crude oil, prices rose last week to $45.68, up 41% from the December low of $32.37 per barrel. Prices reached a high of $145.66 last July. In futures trading yesterday, the one-month price for crude oil rose even further to $47.35 per barrel.

The price of natural gas continued to slide last week with a sharp decline to $3.88 per mmbtu (-60.2% y/y), the lowest level since 2002. The latest average price was down more than two-thirds from the high reached in early-July of $13.19/mmbtu.

Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances from the Federal Reserve Board can be found here.

The German investors and analysts who participated in the ZEW survey conducted between March 2 and March 16, were slightly less pessimistic about expectations six months ahead and slightly more pessimistic about current conditions. The excess of pessimists over optimists regarding the outlook declined from 5.8% in February to 3.5% in March, while the excess of pessimists regarding current conditions increased from 86.2% in February to 89.4% in March. The percent balances on current conditions and expectations are shown in the first chart.

The release of the January data for new orders in manufacturing and industrial production during the period of the survey, provided little evidence that current economic conditions were improving. Industrial production fell 7.5% in the month of January and new orders were down 8.0%. The year over year declines in new orders and industrial production, shown in the second chart, are significantly greater than those of the last recession.

The reduction from 2% to 1.5% in its key interest rate by the European Central Bank on March 5 may have played a role in the slight improvement in the participants expectations of the outlook six months ahead. And the stock market stopped declining. From March 2 to March 16, the Frankfurt Xetra Dax Index rose 9%.