U.S. PPI Soared

Finished producer prices in the U.S. soared 1.1% last month, up sharply from the unrevised 0.3% February increase. The increase nearly doubled Consensus expectations for a 0.6% rise and it was the strongest rise since last November.

Energy prices surged 2.9% (20.4% y/y) as home heating oil prices spiked by 13.1% (52.0% y/y) and natural gas prices increased 4.2% (4.0% y/y). Gasoline prices continued firm and rose 1.3% (36.4%).

Why Do Gasoline Prices React to Things That Have Not Happened? from the Federal Reserve Bank of St. Louis is available here.

Finished consumer food prices spiked 1.2% (5.8% y/y). During the past three months food prices have risen at a 10.1% annual rate led by soaring egg prices (56.3% y/y), higher dairy prices (13.5% y/y), higher coffee prices (13.8% y/y) and higher bakery product prices (7.8% y/y). That strength has been offset somewhat by easier gains in prices for beef & veal (-0.3% y/y) and fresh fruits (0.0% y/y).

Less food and energy, prices matched expectations and rose a more moderate 0.2%, less than half the 0.5% February surge. Prices of core finished consumer goods rose 0.3% (3.3% y/y) due to strength in nondurable prices (4.4% y/y). Capital equipment prices rose a modest 0.1% (2.0% y/y), about equal to the rise for all of last year.

Intermediate goods prices surged 2.3% on the strength of a 2.9% (20.0% y/y) jump in food prices and a 5.9% (26.8% y/y) increase in energy prices. Excluding food & energy, prices about doubled the February rise with a 1.1% increase.

The crude materials PPI continued to surge and rose 8.0%. Crude energy materials prices jumped another 13.4% (47.1% y/y) and food prices jumped 2.0% (18.1% y/y). The core crude materials PPI also was quite firm and rose 3.5%, about the same as it did in February. Prior strength in prices for iron & steel scrap eased a bit to a 16.0% y/y rise. That was down from last year's full year increase of 21.4%.

Financial Market Turmoil and the Federal Reserve: The Plot Thickens is yesterday's speech by Federal Reserve Board Governor Kevin Warsh ad it can be found here.

The April index of manufacturing activity in New York State recovered to 0.63% following the sharp falloff in March to a reading of -22.2%. It was better than expectations for continued weakness at a level of -17%. The figure is a diffusion index and it is reported by the Federal Reserve Bank of New York.

Since the series' inception in 2001 there has been a 55% correlation between the index level and the three month change in U.S. factory sector industrial production.

New orders, shipments and inventories each improved.

The employment index, however, deteriorated to a level of 0.00% from 4.49% in March. During all of 1Q08 the employment index averaged 1.61% versus 11.28% averaged during all of last year. In the (perhaps too) short six year history of the NY employment index, there has been an 85% correlation between it and the three month growth in overall factory sector employment.

Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.

Pricing pressure rose even further to an index level of 57.29, its highest since 2005. Since 2001 there has been an 81% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.

The Empire State index of expected business conditions in six months fell to a reading near the recession low during 2001.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.

For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click here.

According to the International Council of Shopping Centers ICSC-UBS Chain Store survey, sales increased 0.9% last week and added to a 0.7% rise during the prior period. So far in April sales have risen 0.9% from March.

During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.

The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

During the latest week the leading indicator of chain store sales from ICSC-UBS recovered just a piece of the prior week's 1.8% plunge with a 0.8% increase.

Gasoline prices jumped another six cents last week to a record of $3.39 per gallon. In yesterday's trading the wholesale price of gasoline rose to $2.72 per gallon, up another four cents from last week's average./p>

Crude oil prices jumped five dollars w/w to $108.93 (74.0% y/y for a barrel of WTI crude. That price is up roughly thirteen dollars so far this year.

Concern over inflation is being fueled by today's releases of March inflation in Italy and France, both of which exceeded 3.5%. The year to year rate of increase in the Harmonized Index of Consumer Prices in Italy rose 3.57% and, in France, 3.53%. Inflation in March for Germany was released earlier and it was 3.2%. Inflation rates for France, Italy and Germany are shown in the second chart, where the sharp run up in inflation since last September is apparent.

Institutional investors and analysts in the ZEW survey are still relatively comfortable with the present economic conditions--the excess of optimists over pessimists rose slightly in April to 33.2%. They have, however, become much more cautious about the next six months. The excess of pessimists over optimists regarding the next six months rose from 32.0% to 40.7%. This compares with the largest excess of pessimists of 62.2% in December, 1992. The third chart shows percent balances for current and expected conditions since the beginning of the series.