{"id":385,"date":"2014-11-18T09:31:47","date_gmt":"2014-11-18T14:31:47","guid":{"rendered":"http:\/\/naroffeconomics.com\/?p=385"},"modified":"2014-12-05T16:56:11","modified_gmt":"2014-12-05T21:56:11","slug":"october-producer-price-index-and-november-home-builders-index","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=385","title":{"rendered":"October Producer Price Index and November Home Builders\u00e2\u20ac\u2122 Index"},"content":{"rendered":"

KEY DATA:<\/strong> PPI: +0.2%; Goods: -0.4%; Services: +0.5%: Food: +1.0%; Energy: -3.0%\/NAHB: up 4 points<\/p>\n

IN A NUTSHELL:<\/strong> \u00c2\u00a0\u00e2\u20ac\u0153While wholesale inflation remains modest, what energy is giving, food is taking away.\u00e2\u20ac\u009d \u00c2\u00a0<\/em><\/strong><\/p>\n

WHAT IT MEANS:<\/strong> \u00c2\u00a0The economy is solid, jobs are being created and the unemployment rate is nearly at full employment, so the Fed has to shift its attention to something else if it is to come up with the next rationalization of why it is keeping rates low.\u00c2\u00a0 Right now, the FOMC seems to be locked into low compensation gains, but there is also the issue of inflation, or its lack thereof, to fall back on.\u00c2\u00a0 Some members have already expressed that concern.\u00c2\u00a0 When it comes to current and future consumer costs, wholesale prices seem to be telling a confusing story.\u00c2\u00a0 The Producer Price Index rose a little more than expected in October<\/em><\/strong>.\u00c2\u00a0 The large drop in energy costs was supposed to cause the index to decline but there were offsetting increases.\u00c2\u00a0 In particular, food prices continue to rise sharply <\/em><\/strong>and over the year, they are up a whopping 6%.\u00c2\u00a0 In addition, the index presents a variety of services prices, a key differentiation.\u00c2\u00a0 Since services comprise 63.5% of the index, this break down better mirrors the economy. The category called \u00e2\u20ac\u0153final demand trade services\u00e2\u20ac\u009d, which looks at retailing and wholesaling, surged. \u00c2\u00a0As a result, the services component rose strongly<\/em><\/strong>.\u00c2\u00a0\u00c2\u00a0 Excluding energy, wholesale costs have increased by a moderate 2% over the year.\u00c2\u00a0 That said, the inflation pipeline is not showing any major problems ahead, even when energy is excluded.<\/em><\/strong><\/p>\n

On the housing front, home builders are smiling again.\u00c2\u00a0 The National Association of Home Builders\u00e2\u20ac\u2122 Housing Market Index jumped in November.\u00c2\u00a0 The sales conditions, future sales and traffic components were all up.\u00c2\u00a0 <\/em><\/strong>The only weakness was in the Midwest.\u00c2\u00a0 It will be interesting to see if the current bad weather changes things.<\/p>\n

MARKETS AND FED POLICY IMPLICATIONS:<\/strong> The Fed is suffering from wandering-eye syndrome.<\/em><\/strong>\u00c2\u00a0 First the members were worried about growth and jobs.\u00c2\u00a0 When those issues dissipated, they started focusing on the unemployment rate.\u00c2\u00a0 When that blew through their target they started talking about wage inflation.\u00c2\u00a0 Worker compensation remains muted but even if it starts to move up, there are rumblings that low inflation could become an issue.\u00c2\u00a0 In other words, if the Fed wants to keep rates low, they will find something out there that would defend their stance.\u00c2\u00a0 However, inflation is inching upward, even as it remains below its desired level.<\/em><\/strong>\u00c2\u00a0 The rise in producer prices points to a further modest uptick in household costs<\/em><\/strong>, but as I have said many times, the pathway from wholesale to consumer prices is hardly straight.\u00c2\u00a0\u00c2\u00a0 Meanwhile, the economy looks really good and the increase in the Homebuilders\u00e2\u20ac\u2122 Housing Market Index reinforces the view that conditions are getting even better.<\/em><\/strong>\u00c2\u00a0 Thus, I am sticking to my belief that the Fed will start raising rates this spring.\u00c2\u00a0 Meanwhile, in the land of make believe, investors may look at the data and say there isn\u00e2\u20ac\u2122t enough inflation for the Fed to do anything in the near term and with the economy improving, it is pedal to the metal, or whatever they say.<\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA: PPI: +0.2%; Goods: -0.4%; Services: +0.5%: Food: +1.0%; Energy: -3.0%\/NAHB: up 4 points IN A NUTSHELL: \u00c2\u00a0\u00e2\u20ac\u0153While wholesale inflation remains modest, what energy is giving, food is taking away.\u00e2\u20ac\u009d \u00c2\u00a0 WHAT IT MEANS: \u00c2\u00a0The economy is solid, jobs are being created and the unemployment rate is nearly at full employment, so the Fed … Continue reading October Producer Price Index and November Home Builders\u00e2\u20ac\u2122 Index<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,37,14],"tags":[],"class_list":["post-385","post","type-post","status-publish","format-standard","hentry","category-economic-indicators","category-national-association-of-home-builders-index","category-producer-price-index"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/385","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=385"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/385\/revisions"}],"predecessor-version":[{"id":386,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/385\/revisions\/386"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=385"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=385"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=385"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}