Sunday, February 22, 2015

January reports on producer prices, industrial production, and new residential construction, et al

oddly, all three of the widely watched national economic releases this week were released within a 45 minute span on Wednesday morning: Industrial Production and Capacity Utilization for January from the Fed, New Residential Construction for January (pdf) from the Census Bureau, and the Producer Price Index for January from the BLS...the past week also saw the releases of the first two Fed regional manufacturing surveys for February, the Empire State Manufacturing Survey from the New York Fed, covering New York and northern New Jersey, and the Philadelphia Fed's February Manufacturing Business Outlook Survey, covering Pennsylvania, southern New Jersey, and Delaware...significant paragraphs of those two reports, as well as from several weekly reports, can be accessed on one page at the Research Economics page at OneWall.com..

January Producer Prices Fall 0.8% on Widespread Lower Prices, Margins

probably the most interesting economic report of those released this week was the January report on the Producer Price Index from the Bureau of Labor Statistics, which showed the headline producer price index for final demand had fallen 0.8% for the month, after falling 0.2% in both November and December, and which left year over year wholesale inflation unchanged...both the monthly decrease and the year over year change are the greatest drop that this new PPI index has ever shown in the two years of its reformulated data, while prices for wholesale goods saw their largest drop in more than five years when compared to the old PPI...

every subindex of the PPI except for final demand for trade services was lower in January, as the price index for final demand for goods fell by 2.1%, led by a 10.3% decrease in prices for wholesale energy products, with a 1.2% increase in wholesale electricity prices offsetting a 24.0% decrease in wholesale gasoline prices and decreases of 19.6% and 19.2% for home heating oil and diesel fuel respectively... the index for final demand for foods was also down 1.1%, the largest drop in finished food prices since March, as fresh eggs fell 21.7% and pork prices were 7.6% lower, while seafood prices rose 10.1% and vegetable prices rose 8.1%....excluding food and energy, even core wholesale prices, as measured by the index for final demand for goods less foods and energy, fell 0.2%, with drops of 9.1% in wholesale prices for industrial chemicals and 1.1% for transformers and power regulators leading core prices lower...

in addition, the index for final demand for services fell by 0.2%, as the index for final demand for transportation and warehousing services fell 0.8%, as passenger airline margins fell 1.0% and margins for both railroads and freight truckers fell 0.7%...meanwhile, the index for  final demand for trade services, a measure of the margins received by retailers and wholesalers, rose by 0.5% as a 9.3% increase in the margins received by flooring and floor coverings retailers and generally higher margins for other retailers and wholesalers offset a 31.1% decrease in margins received by TV, video, and photographic equipment retailers....finally, the index for final demand for services less trade, transportation, and warehousing services fell 0.4% on a 4.5% decrease in prices for securities brokerage, dealing, investment advice, and related services, a 3.8% decrease in flight arrangement services, and a 1.3% decrease in prices for outpatient care, which were partially offset by a 5.0% increase in passenger car rental margins...

this report also showed the price index for processed goods for intermediate demand fell by 2.8% in January, the largest drop since a 4.1% drop in December 2008, leaving intermediate goods 5.5% lower priced than a year ago....more than half of that drop could be accounted for by an 8.3% drop in prices for intermediate energy goods, again led by a 24.0% decrease in intermediate gasoline prices...but the index for processed foods and feeds also dropped by 2.5%, as intermediate dairy products were priced 5.7% lower and prepared animal feeds fell 3.6%....and even core intermediate goods were lower, as the price index for processed goods for intermediate demand less food and energy fell 1.3% after falling 0.6% in December and 0.5% in November, with organic chemicals down 11.5%, agricultural chemicals down 6.4%, and plastic resins down 4.7%...

in addition, the price index for intermediate unprocessed goods fell by 9.4% after falling 6.4% in December and is now 18.4% below the level of a year ago, on a 23.6% drop in the index for raw energy materials led by a 30.6% decrease in crude oil prices and a 1.8% drop in producer prices for unprocessed foods and feeds, largely on an 18.7% drop in prices for slaughter hogs, while even the core index for raw materials fell 0.7% on a 3.5% drop in scrap copper prices and a 3.1% drop in scrap paper prices.....

finally, the price index for services for intermediate demand fell 0.2% in January, as a 0.3% decrease in the index for  transportation and warehousing services for intermediate demand was offset by a 0.4% decrease in prices for intermediate services less trade, transportation, and warehousing, while prices for trade services for intermediate demand were unchanged...over the 12 months ended in January, the price index for services for intermediate demand rose 1.5%...

the implication of widespread lower prices such as this report reveals is that yet to be released January reports that are reported in dollars are likely to show lower sales, orders, and inventories...hence, we should not be surprised if we see that the coming releases for such reports as the January advance report on durable goods, January wholesale sales and inventories, and January factory orders come in nominally lower than December...the key to reading those reports will be to examine which of the components are down and by how much, to reveal whether the declines are actual declines in goods ordered, sold, manufactured or inventoried, or whether the reports are actually showing an increase which just seems like a decrease because of lower prices...

January Industrial Production Up 0.2% on Cold, Revisions

industrial production increased a bit in January on above normal utility usage due to colder than normal weather in the heavily populated eastern US....the Fed's G17 release on Industrial production and Capacity Utilization for January indicated that industrial production rose 0.2% from a December reading which was revised from a decrease of 0.1% to a decrease of 0.3%...furthermore, previously reported increases in September and November were reduced by 0.2%, and the unchanged result from October was revised to a 0.1% decline...as a result, the industrial production index, which is benchmarked to 2007 production being equal to 100.0, actually fell from the 106.5 reported last month to 106.2 in January, with the index for December revised to 106.0....the manufacturing index, which accounts for roughly 70% of the industrial composite, also rose 0.2% to 102.1 in January, essentially by virtue downward revisions of the indexes for previous months; the manfacturing index for December was revised from 102.5 to 102.0, the November index was revised from 102.2 to 102.0, and the October manufacturing index was revised from 100.9 to 100.8...after revisions, that left the manufacturing index up 5.6% from last January's weather depressed reading...and in this year as well, the seasonally adjusted utility index rose 5.1% to 105.6 as electricity production rose 2.0% and natural gas output increased by 4.4% above seasonal norms, but even so, the utility index is still 6.6% below last January's reading...meanwhile, the mining index, which includes oil & gas production, fell 1.0% to 133.3 in January, after falling by 1.0% in December, as lower oil prices continued to slow the higher cost extraction processes, even as the index remained 8.5% higher than a year ago...

in the associated report on capacity utilization, which is the percentage of our plant and equipment that was in use during the month, the Fed found that the utilization rate for total industry was unchanged at 79.4% in January, although December's operating rate was revised down from the originally reported 79.7% to achieve that...78.1% of our manufacturing capacity was in use in January, up from the downwardly revised oprating  rate of 78.0% in December, with NAICS classified durable goods manufacturing operating at 78.0% of capacity, up from 77.9% in December, while NAICS non-durable manufacturers were operating at a 79.9% rate, down from 80.0% capacity utilization in December... meanwhile, capacity utilization by the 'mining' industry fell 1.5% from 88.5% to 87.5%, reflecting a pullback in drilling by the oil and gas industry due to lower oil prices, while the operating rate for utilities rose from 76.4% to 78.2%, reflecting above normal usage of gas and generating capacity due to below normal temperatures.... 

for more details, the Fed's G17 release has several paragraphs on industrial production and capacity utilization by both industry group and market group near the end of the opening page...following that, there are links to 3 charts and 14 pages of tables...in covering this report, we have generally accessed the following two tables for a more detailed breakdown of the changes in production and utilization by types of manufacturer..

for the associated graphics, Robert Oaks includes nine primary FRED graphs in his coverage of this report here: Industrial Production Expands to Mediocre Growth for January 2014

January Housing Starts and Building Permits Mostly Unchanged

there was not much noteworthy about the report on New Residential Construction for January (pdf) from the Census Bureau; they estimated that starts on new housing units were at a seasonally adjusted annual rate of 1,065,000, which was 2.0 percent (±10.4%)* below the estimated and revised December pace, a range that indicates they don't have sufficient data to determine whether housing starts rose or fell for the month...and while housing starts were 18.7 percent (±14.5%) higher than January of last year, that was a month where housing was severely impacted by the "polar vortex" and associated storms that clobbered 1st quarter GDP.....the unadjusted estimates from which those annual rates were extrapolated indicated an estimated 71,800 total units were started in January, down from 73,000 in December, with just 44,300 of those single family dwellings, while construction was started on 27,100 apartment units in buildings with 5 or more units....

the monthly data on new building permits, with its smaller margin of error,  are probably a better monthly indicator of new construction trends than the volatile and often revised starts data... in January, Census estimated new permits were issued at a seasonally adjusted annual rate of 1,053,000, which was 0.7 percent (±0.6%) below the revised December annual rate of 1,060,000 but was still 8.1 percent (±2.0%) above the 974,000 annual rate estimated for new permits in January of last year...those estimates were extrapolated from the unadjusted estimate of 69,600 new permits issued in January, which was down from the estimated 83,600 new permits issued in December...
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NB: there are at least 5 dozen linked articles covering the range of this week's negotiations between Greece and the Troika at the end of this week's globalglassonion...& my coverage of last week's activity in the oil patch is here: rig count still falling, oil production and oil glut still rising…


(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

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