Producer Price Index Sept 09

20 10 2009

This morning the Bureau of Labor Statistics released the September 2009 Producer Price Index report.  The PPI dropped a little this month mostly due to cost of gas declines (0.6% decline).  In August we saw a significant increase at 1.7% raises a little alarm in that the fluctuations are evident.  The fact that most of this is based on energy prices swinging is both a little calming and potential for more signs that oil prices are moving too much.

“Wholesale prices in the U.S. unexpectedly fell in September on lower fuel costs, a sign inflation remains muted and the Federal Reserve has leeway to keep borrowing costs low as the economy recovers.”  Bloomberg

What does this mean to me: we will probably not see much increase in prices over the coming months (keep watching the price of oil/gas).  This is also a sign that while some of the recent indicators have been good, we might see a lull in the recovery process.

As a part of this series, I am also going to add the price of oil.  It was not one of the Baumohl Indicators, but I think that might have been because it comes out of the financial markets.

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Producer Price Index (PPI) August 2009

15 09 2009

As part of my Baumohl series on US Indicators, here is the press release on the August PPI data.  The PPI (Finished Goods) increased a seasonally adjusted 1.7% in August.  July saw a .9% decrease and June a 1.8% increase.

So what?

If we are looking for signs for the economy it is a good sign that things are again improving.  If we look at the last 12 months, 8 of the 12 months saw declines in the PPI including 5 straight months from Aug 08 through Dec 08.  4 of the last 5 months have seen positive advances.

What about Cost of Goods sold?  I would certainly expect some industries to see their COGS rate start to increase.  If we remember back to late 2007 and early 2008, ingredient prices started to rise dramatically.  See the chart below and notice the area where the PPI was elevated quite a bit about the trend line.

Aug 2009 PPI History

What does it mean to your business?  It clearly depends on the industry and your ability to act on external data.  If you are a bread manufacturer and your margins are pretty lean, you might need to look somewhere to balance your expense ratios.

Investing?  Look at your portfolio.  What industries are you invested in?  How does the PPI impact those companies?  If we are seeing the trend return to perhaps the elevated levels of late 07 / early 08, perhaps there are some solid opportunities?  Look at how those companies did during those time frames in terms of performance?


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