Producer Price Index: A Surprising Increase In November

Today’s release of the November Producer Price Index (PPI) for Final Demand came in at 0.3% month-over-month seasonally adjusted, up from -0.4% in October. It is down -1.2% year-over-year, the eleventh consecutive month of YoY shrinkage. Core Final Demand (less food and energy) came in at 0.3% MoM, up from -0.3% the previous month and is up 0.4% YoY. The Investing.com forecasts were for -0.1% headline and 0.1% core.

Here is the summary of the news release on Final Demand:

The Producer Price Index for final demand increased 0.3 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices decreased 0.4 percent in October and 0.5 percent in September. On an unadjusted basis, the final demand index fell 1.1 percent for the 12 months ended in November, the tenth consecutive 12-month decline.

The November rise in the final demand index can be traced to prices for final demand services, which advanced 0.5 percent. In contrast, the index for final demand goods moved down 0.1 percent. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new “Final Demand” series in 2014, a shift we fully support. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.

As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

Final Demand vs. Finished Goods

The Headline Finished Goods for November came in at 0.1% MoM and is down -3.3% YoY. Core Finished Goods were up 0.1% MoM and up 1.7% YoY.

Now let’s visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. The plunge since mid-2014 in headline PPI is, of course, energy related — now off its interim low set in April. Core PPI has remained relatively stable since early 2014.