Summary
Two inflation-related measures were released last Thursday (4/1), one
from the government, the other from the private sector. The results of the
former were tame and received a good deal of press. The results of the latter were
more onerous. These did not receive as much notice as they should have.
First, the PPI
Last Thursday morning, the Labor Department released the Producer Price
Index for February. Because of its recent major overhaul of this key series,
Labor is still behind schedule in releasing the data. February results were
originally due out on 3/12, and the March numbers were due out on 4/8. The
March release has been delayed, with no specific date presently scheduled.
And last week's numbers certainly turned out to be anticlimactic, at
least in some circles. There was concern, certainly justified, that the February
PPI would reflect the commodity inflation now showing up so vividly in other
venues. It did not!
For February, the Producer Price Index for finished goods was up a mere
0.1% (0.069% before rounding), versus January's 0.6% increase (0.62% before
rounding). Moreover, through February, the PPI registered a year-over-year gain
of 2.1%, a significant deceleration from January's 3.3%. As of December, the
PPI was up 3.9% year over year.
Granted, there are a host of PPI series, including ones at different
stages of processing. (The three major categories are "finished goods,"
"intermediate materials" and "crude materials.") Nevertheless, the one garnering the
most attention each month is the series for finished goods, and it should
reflect general trends. I need not point out to the conspiracy people in the
audience that this is a government number, brought to us by an Executive Branch
department, and it is an election year! (There were some groans along similar
lines last Friday, with the Labor Department release all those great employment
numbers.)
Next, the PMI
A little later last Thursday morning, the Institute for Supply Management
released its monthly index (the "PMI") measuring the economy's manufacturing
activity. This is a very closely watched number, partially because the ISM is
such a highly regarded private-sector organizagtion.
The March PMI came in at 62.5, up from Feburary's reading of 61.4. This
is a diffusion index, constructed such that any reading above 50.0 indicates a
expansion in the manufacturing sector.
Wall Street stock bulls were delighted with the result. But many folks
who operate in the fixed-income arena were considerably more circumspect.
The overall monthly PMI contains several subsectors, including one that
measures "prices paid." This is carefully scrutinized in some circles, since
it has been a good indicator historically of brewing inflationary problems.
And in this regard, the March figures did not paint a sanguine picture.
March represented the 25th consecutive month in which prices rose, with
the index measuring this component coming in at a reading of 86.0. This was
the highest since January of 1995, and as recently as last October, the number
was a much lower 58.5.
Moreover, ISM said that 73% of its survey respondents reported higher
prices during the month, while only 1% reported lower ones. This represented a
major change in skew from prior months. In October, the numbers wewre 26%/9%,
versus March's 73%/1%.
The following table examines the ISM prices-paid data over the
consecutive six months ended March. So you can see what the numbers looked like for
March 2003, they are included, too.
The lower portion of the table breaks out Labor Department data measuring
the supplies and components sector of the PPI's intermediate materials
series. This is a somewhat better matchup against the PMI numbers than are the
finished goods data. As the numbers reveal, there's be some noticeable pickup in
price pressures in this PPI measure over the last couple reported months,
although the year-over-year results do not materially diverge from those for the
PPI for finished goods.
--------------------------------------------
INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICES-PAID COMPONENT
(Prices-Paid Index Not Seasonally Adj.*)
--------------------------------------------
Respondents Reporting
Higher, Lower, or
Prices Unchanged Prices
Month/ Overall Paid ---------------------
Year Index Index Higher Lower Unch.
--------------------------------------------
03/04 62.5 86.0 73% 1% 26%
02/04 61.4 81.5 65% 2% 33%
01/04 63.6 75.5 54% 3% 43%
12/03 66.2 66.0 37% 5% 58%
11/03 62.8 64.0 33% 5% 62%
10/03 57.0 58.5 26% 9% 65%
--------------------------------------------
03/03 46.2 70.0 47% 7% 46%
--------------------------------------------
PRODUCER PRICE INDEX (Inter-
mediate Materials: Supplies &
Components, Seasonally Adjusted)
--------------------------------------------
Year-
Month/ Ago Month/ Year/
Year Index Index Month# Year
--------------------------------------------
03/04 NA 136.4 NA NA
02/04 137.2 133.6 11.1% 2.7%
01/04 136.0 131.1 10.2% 3.7%
12/03 134.9 129.7 5.5% 4.0%
11/03 134.3 129.9 -0.9% 3.4%
10/03 134.4 129.9 3.6% 3.5%
--------------------------------------------
*The ISM ceased seasonally adjusting its
Price Index effective with the release of
Jaunuary 2003 data. #Compound annual rate.
--------------------------------------------
Addendum
Yesterday morning, the Institute for Supply Management released its index
covering the economy's non-manufacturing activity during March. This
measure's prices-paid component, like that of the PMI, showed some disconcerting
trends.
The non-manufacturing measure is constructed in similar fashion to the
ISM's manufacturing index. It's a diffusion measure constructed such that a
reading above 50.0 indicates expansion.
The overall index measuring non-manufacturing activity during March came
in at 65.8. The prices-paid component came in at a reading of 65.7, up a
sizable 8.4 points from February. Moreover, March marked the 24th consecutive
month in which prices rose (versus 25 consecutive months for the PMI).
The table below breaks out results during 2004 to date.
--------------------------------------------
INSTITUTE FOR SUPPLY MANAGEMENT
NON-MANUFACTURING INDEX -- TOTAL
INDEX AND PRICES-PAID COMPONENT
(Prices-Paid Index Is Seasonally Adj.)
--------------------------------------------
Respondents Reporting
Higher, Lower, or
Prices Unchanged Prices
Month/ Overall Paid ---------------------
Year Index Index Higher Lower Unch.
--------------------------------------------
03/04 65.8 65.7 43% 3% 54%
02/04 60.8 57.3 31% 9% 60%
01/04 65.7 59.7 26% 4% 70%
--------------------------------------------
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