U.S. PPI Is Strong For Third Month; Core Prices Drop Sharply

Other than energy prices, inflation is tame. So often observed, it could be considered humdrum. For last month, however, it's an appropriate way to describe producer pricing power. The U.S. Producer Price Index for finished goods rose 0.4% for the third consecutive month, but the latest was half the Consensus expectation. Higher energy prices were behind the increase as food prices fell along with core prices. The PPI less food & energy fell 0.6% which was the largest decline since July 2006. Consensus expectations were for a 0.1% uptick.

Energy prices jumped 3.7% (12.9% y/y) as gasoline prices increased 9.8% (18.1% y/y) and home heating oil rose 5.1% (26.8% y/y). These gains were, however, offset by sharp monthly declines in natural gas (+1.3% y/y) as well as electricity prices (+4.4% y/y). Food prices ticked lower as vegetable (-8.5% y/y) and beef & veal prices fell (+14.3% y/y). These declines were offset by higher egg (-6.8% y/y) and fresh fruit (-12.2% y/y) prices.  

Core finished consumer goods prices continued tame and posted a 0.4% decline (+2.2% y/y). Passenger car prices fell 3.0% (-3.7% y/y). Capital goods prices also were down 0.8% (+0.5% y/y) as light truck prices fell 4.3% (+1.4% y/y).

Intermediate goods prices jumped 1.2% as energy prices surged 3.2% and the y/y gain improved to 13.2%. That increase was accompanied by a 1.3% increase in food prices (6.6% y/y). Core-intermediate prices also were quite strong with a 0.6% gain (4.4% y/y). Crude goods pricing resumed its earlier strength due to a 5.4% increase in energy prices (8.2% y/y). Crude food prices continued to surge and jumped 4.2% (21.8% y/y). Continuing to reflect strength in the industrial sector, core crude prices posted a 2.1% (26.0% y/y) jump that was led by strong copper scrap prices (27.0% y/y) and higher iron & steel scrap prices (28.2% y/y).

The PPI data are contained in Haver's USECON database, with further detail in PPI and PPIR.

The National Association of Home Builders reported that their index of housing market activity improved to 16 this month from a downwardly revised 15 in October. The figure remained above the all-time low reached in January of last year but it disappointed the Consensus expectation for a reading of 17.

The Home Builders index is compiled from survey questions asking builders to rate market conditions as "good," "fair," "poor" or "very high" to "very low." The figure is thus a diffusion index with numerical results over 50 indicating a predominance of "good" readings. During the last ten years there has been a 75% correlation between the y/y change in the index and new plus existing single family home sales.

The index of single-family home sales held steady at 16 and remained down from levels near 80 in 2004. The index of sales during the next six months improved to 25. Higher as well was the home builders' indication that the traffic of prospective buyers rose slightly. Each of these NAHB figures is seasonally adjusted. The Builders' index for the Midwest and Western regions of the country showed the greatest m/m improvement. The index for the South (unchanged) and the Northeast (down) were weak.

The Home Builders' Housing Opportunity Index, which is the share of homes sold that could be considered affordable to a family earning the median income, inched up in 2Q (the latest available figure) to 72.3%. That was near the record high, buoyed by lower home prices, lower interest rates and higher income. (There is a break in the series from 2002 to 2003.)

The NAHB has compiled the Housing Market Index since 1985.The weights assigned to the individual index components are .5920 for single family detached sales, present-time, .1358 for single family detached sales, next six months; and .2722 for traffic of prospective buyers. The results, along with other housing and remodeling indexes from NAHB Economics, are included in Haver's SURVEYS database.