US PPI Final Demand (M/M) Nov: 0.8% (Est 0.5%, Prev 0.6%) - PPI Reaccelerates In November With A Broad-Based Advance; Intermediate Prices Remain Elevated As Well - Neil's Summary
Seeking Alpha Analyst Since 2013
Managing Partner of Sethi Associates, Ltd., a family owned investment manager specializing in investments in real estate, public markets, and venture capital with a current focus on esports investments. You can view my LinkedIn profile here. https://www.linkedin.com/in/neil-sethi-31204051. Started the blog at the request of friends who wanted an easier way to follow my thoughts on the markets and economic data, and now I share the articles on Seeking Alpha. Feedback always welcome!
- US PPI Final Demand (M/M) Nov: 0.8% (est 0.5%, prev 0.6%)
- PPI Final Demand (Y/Y) Nov: 9.6% (est 9.2%, prev 8.6%)
- US PPI Ex Food And Energy (M/M) Nov: 0.7% (est 0.4%, prev 0.4%)
- PPI Ex Food And Energy (Y/Y) Nov: 7.7% (est 7.2%, prev 6.8%)
Producer Price Indexes - November 2021 (bls.gov)
All figures m/m unless otherwise noted. As a reminder, this report breaks prices down into two components, final goods (those which are then sold to retailers/wholesalers) and intermediate demand goods (which are in various stages of becoming final goods). All the headline numbers news services, etc., quote are final demand. I'll go through both separately with a lot of detail as we get deeper (mostly from the report). This report is considered the "pig in the python", particularly in terms of intermediate goods which by definition are still moving through the chain to final goods. If final goods prices are higher that either gets passed along to consumers (increasing CPI) or is eaten by companies (impacting margins).
After headline producer prices for final demand (as revised) came in at +0.6% m/m in the prior three months, November headline PPI accelerated to +0.8% with prices outside of energy accelerating in broad based fashion as indicated by the "core" CPI number (ex-food, energy, and trade) increasing by almost as much (+0.7% after +0.4% in October and +0.2% in September). Looking y/y November came in at a new record high level of 9.6% (going back to Nov 2010 when y/y was first calculated). Core also was at a record y/y at 7.7%. Economists had expected a 0.5% increase for headline and 0.4% increase for core, so this was well above expectations.
The news wasn't much better we look at intermediate prices (those which are incorporated into final goods (which are then sold to the end sellers)). While processed intermediate goods decelerating to 1.5% from 2.1% that is still extremely high, and unprocessed goods remained in emerging market territory up 4.8% m/m (down from 5.5% in October), although much of that was due to the spike in natural gas which contributed two-thirds of the rise in intermediate unprocessed goods. It also was a contributor to intermediate processed goods increasing 3.6%. But even ex food and energy they were up 1.2 and 4.5% respectively. Again those are all m/m! Intermediate services seemed tame by comparison at +0.6% but that was up from 0.1% in October. Intermediate services are up 8/1% y/y. As intermediate goods flow downstream to final goods this is a foreboding sign that there's unlikely much relief in final demand prices coming. We flagged this last month as well and it appears to have been spot on.
Final Demand - As noted above, final demand PPI was broad based with goods prices up 1.2 percent in November (down from 1.3% in October, up from 1.1% in September) and services up 0.7 percent (up from 0.2% in October, 0.4% in September). Energy was up 2.6% and food 1.2% (5.3% and -0.3% respectively in October).
Here's the detailed table on selected areas for final demand
Some more specifics from the report on final demand goods, prices for iron and steel scrap rose 10.7 percent. The indexes for gasoline, fresh fruits and melons, fresh and dry vegetables, industrial chemicals, and jet fuel also moved higher. Conversely, prices for diesel fuel decreased 2.6 percent. The indexes for processed young chickens and for light motor trucks also fell.
Turning to final demand services, as noted above they rose 0.7 percent in November, the eleventh consecutive advance. Over half of the broad-based increase in November can be traced to prices for final demand services less trade, transportation, and warehousing, which climbed 0.6 percent. The indexes for final demand trade services and for final demand transportation and warehousing services also moved higher, rising 0.6 percent and 1.9 percent, respectively.(Trade indexes measure changes in margins received by wholesalers and retailers.). Leading the November increase in the index for final demand services, prices for portfolio management advanced 2.9 percent. The indexes for guestroom rental; securities brokerage, dealing, investment advice, and related services; fuels and lubricants retailing; airline passenger services; and transportation of freight and mail also moved higher. In contrast, margins for chemicals and allied products wholesaling fell 1.3 percent. The indexes for furnishings wholesaling and for bundled wired telecommunications access services also declined.
Intermediate Demand - In terms of intermediate prices, as noted above, prices for processed goods moved up 1.5 percent, the index for unprocessed goods increased 4.8 percent, and prices for services advanced 0.6 percent.
Looking first at intermediate processed goods, over half of the November increase can be attributed to prices for processed materials less foods and energy, which moved up 1.2 percent. The index for processed energy goods rose 3.6 percent. In contrast, prices for processed foods and feeds fell 0.2 percent. For the 12 months ended in November, the index for processed goods for intermediate demand advanced 26.5 percent, the largest 12-month increase since jumping 28.9 percent in December 1974.
Getting more granular, A major factor in the increase in prices for processed goods for intermediate demand was the index for industrial chemicals, which rose 2.5 percent in November. Prices for utility natural gas, gasoline, electric power, fabricated structural metal products, and hot rolled steel sheet and strip also moved higher. Conversely, the index for confectionery materials fell 6.2 percent. Prices for diesel fuel and for primary nonferrous metals also decreased.
In terms of unprocessed goods, the index for unprocessed goods for intermediate demand rose 4.8 percent in November, the eighth consecutive increase. Over 80 percent of the November advance can be traced to prices for unprocessed energy materials, which moved up 8.7 percent. The index for unprocessed nonfood materials less energy increased 4.5 percent. In contrast, prices for unprocessed foodstuffs and feedstuffs fell 0.7 percent. For the 12 months ended in November, the index for unprocessed goods for intermediate demand jumped 52.5 percent.
Getting more granular, in October, nearly two-thirds of the rise in prices for unprocessed goods for intermediate demand can be attributed to a 14.3-percent increase in the index for natural gas. Prices for crude petroleum, grains, iron and steel, nonferrous metal ores, and fresh fruits and melons also moved higher. Conversely, the index for raw milk decreased 10.3 percent. Prices for slaughter poultry and for hides and skins also declined.
Here's table of selected y/y increases for intermediate goods.
a
In terms of services, as noted the index for services for intermediate demand advanced 0.6 percent in November after inching up 0.1 percent in October. Most of the increase in November can be attributed to a 0.8-percent rise in prices for services less trade, transportation, and warehousing for intermediate demand. The index for transportation and warehousing services for intermediate demand climbed 0.7 percent, while margins for trade services for intermediate demand were unchanged. For the 12 months ended in November, the index for services for intermediate demand advanced 8.1 percent.
Getting more granular, over a quarter of the November rise in the index for services for intermediate demand can be traced to a 6.1-percent advance in prices for securities brokerage, dealing, investment advice, and related services. The indexes for portfolio management, television advertising time sales, transportation of freight and mail, temporary help services, and fuels and lubricants retailing also increased. In contrast, margins for chemicals and allied products wholesaling fell 1.3 percent. The indexes for arrangement of freight and cargo transportation and for business loans (partial) also declined.
Here's table of selected y/y increases for intermediate services.
Looking at the "stages" after October saw increases in all but stage 3 with stage 2 again jumping higher, November saw continued softening there and in stage 2 but stages 1 and 4 accelerated. All remain pretty elevated historically. As a reminder goods go from Stage 1 to 2 to 3 to 4.
To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.