Producer Prices Fall Amid Concerns

24 January, 2019

The U.S. Dollar traded on mixed grounds amid a host of global and domestic issues. The ongoing partial shutdown of the government continues and is now starting to show the impact on the economic releases.

Retail sales numbers for December are late, and further data such as the housing starts and housing sales reports should take some time more. The partial shutdown is also likely to impact the country’s GDP growth.

Globally, Brexit was in the headlines for the most of the week overshadowing the U.S. markets. Here’s a quick recap of the economic reports from the U.S. last week.

Empire State manufacturing index falls in January

Manufacturing in the New York area, as measured by the Empire State manufacturing index from the NY Fed showed a decline in January at a slower pace of new orders and shipments.

The Empire State’s general business conditions index fell to 3.9 in January which marked the lowest level in a year. In December, the index registered a reading of 11.5. However, still, above zero readings indicate expansion in the sector.

The data was however below the forecasts which expected activity to register a reading of 9.

The new orders index fell to 3.5 points compared to the month before. Optimism among the manufacturers was seen moderating with the outlook for future business conditions fell 13 points to 17.8 during the month.

The regional data also showed that hiring slowed. The employment index fell to 7.4. However, firms said that they expect to hire to rise modestly in the coming months.

U.S. Producer Prices Fell in December

The latest producer price index data for December showed that prices were softening at the factory gate. The PPI which is a measure of the prices that businesses receive for the goods and services fell to a seasonally adjusted rate of 0.2% in December on a month over month basis.

The data released by the U.S. Labor Department showed on Tuesday last week. Excluding the volatile food and energy prices, core PPI fell by 0.1% during the month.

The data was worse than expected as economists expected headline PPI to fall 0.1% and expected core PPI to rise 0.2% during the reported month.

On an annualized basis, prices rose 2.5% in December while core PPI was up 2.7%.

The PPI data is seen as a trend of the broader consumer price index gauge, although it does not always signal the same.

Other measures of inflation including the Fed’s core PCE price index have shown no price pressures building up. This is consistent with the Fed’s view of going easy on rate hikes during the year.

Import prices fall on lower oil prices

The U.S. import prices posted the most significant decline since 2016 falling for the second consecutive month. The decreases in import prices were due to lower oil prices and a stronger Dollar.

On an annualized basis, import prices were down 0.6% in December while export prices fell 0.6% in December dropping for a second month after posting a 0.8% decline in November. Agricultural exports increased 3.9% during the period.

On a month over month basis, import prices were down 1.0% following a downward revision of 1.9% decline in November.

Petroleum prices fell 11.6%, extending the declines from 13.3% in November. Excluding food and fuel, import prices remained broadly unchanged. The cost of goods imported from China did not in December as it fell by 0.2% for the year.

U.S. factory production rises despite falling exports

Factory production in the U.S. increased in December despite consumer demand falling and a pullback in exports. The industrial output increased to a seasonally adjusted 0.3% in December compared to the month before. The output at U.S. factories increased by 1.1% on the month marking the biggest gain since February.

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