OK, time to take a break from trade issues (though given the ongoing flood of fakeonomics surrounding Congressional renewal of negotiating authority for the president and Mr. Obama’s proposed Pacific Rim trade deal, it could be a short one!) and refocus on other economic news. This morning’s subject is a new one for RealityChek – producer prices – but worth spotlighting today because the new data seriously undermine claims that a second straight horrible winter largely explains America’s latest bout of economic doldrums.
These PPI figures reveal how much American businesses pay for the various goods and services they use to make what they sell to customers (other businesses and government, as well as households). They’re mainly useful for forecasting the economy’s future prospects both on the overall growth front and the related inflation front (since prices tell us lots about how much of these goods and services businesses think their customers will want in the months ahead). But since these purchasing decisions also affect business’ production decisions in the here and now, PPI numbers are a window into current (along with recent) economic activity, too.
The Labor Department usefully tracks these price change for both final demand (which is simply consumed and economically speaking goes no further), and for demand in intermediate goods and services (which are used to make the goods and services that are in turn finally consumed). Both are extremely important, but given the half-truth that America’s economy is consumer-fueled, let’s examine the situation with final demand – first for goods.
The new report, issued April 23, shows that the total market for these products did indeed worsen markedly over the winter. (See Table A to follow along.) A monthly price gain of 0.3 percent in December was followed by a big 0.7 percent plummet in January and another sizable 0.5 percent drop in February. In March, producer prices for final demand goods resumed rising (by 0.2 percent). So the case for blaming winter looks pretty solid after all, right?
Not exactly. In warmer April, these producer prices fell once more – by 0.4 percent over their levels in colder March. More important, stripping out food and especially energy prices shows how flimsy the winter excuse for America’s feeble recent recovery is. Although food and energy clearly are huge chunks of the U.S. economy and need to be counted to get a full picture, energy prices in particular have experienced huge swings lately (mainly decreases) that surely can’t be adequately accounted for even by the government’s standard ways of adjusting for changing seasons. To complicate matters further, these fluctuating energy prices also reflect not only America’s appetite for fuels, but a still-growing recent global glut stemming significantly from the nation’s domestic energy production revolution.
When food and energy are omitted, the January through April monthly producer price changes for final demand have been 0 percent, -0.1 percent, 0.2 percent, and -0.1 percent. Not much different from each other, that is, and not very robust. Just as important, they don’t differ much from the pre-winter November and December figures: -0.1 percent and 0 percent, respectively. In fact, these price changes also closely resemble those going back to April, which have all hovered around the flat line.
And in case you’re wondering whether this focus on goods distorts the picture because services now dominate the U.S. economy – don’t. Producer prices for final demand services sank during winter, too, but have showed little strength since then and showed just as little during the previous few months.
The clear message from these producer price trends: America’s weather has finally warmed up after that frigid winter. But an economic thaw is nowhere on the horizon.