October PPI: -2.8%
By Barry Ritholtz - November 18th, 2008, 10:51AM
October PPI — down 2.8% was the biggest month over month decline since the date series began in 1947.
The -2.8% was far below consensus of down 1.9%; the core rose 0.4% (more than consensus 0.3%).
The year over year gain is now 5.2% — and that’s the lowest since September 2007; Core year over year gain of 4.4% is the most since 1989.
Biggest contributor? A 24.9% decline in gasoline prices.
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Monthly % Change
Chart courtesy Barrons Econoday
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Month-over-Month Change
chart via Econompic
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Source:
Producer Price Indexes - October 2008
BLS, NOVEMBER 18, 2008
http://www.bls.gov/ppi
November 18th, 2008 at 10:59 am
You know things are bad when there is negative inflation data and the interest rate sensitive sectors barely budge.
November 18th, 2008 at 11:15 am
So what kept core positive? Light trucks, commercial aircraft and beer.
November 18th, 2008 at 11:26 am
This was not a deflationary report. Core up but still elevated. Reason: Companies are not passing along their PP savings to consumers. Bad news for the economy, who is getting squeezed by a slowing economy and producers reluctant to give up any of their profits (if they have any).
Roubini is right: We’re headed down and won’t see a meaningful rally until after Obama is inaugurated.
November 18th, 2008 at 11:27 am
Meant to write: “Bad news for the consumer…”
November 18th, 2008 at 11:33 am
This is great! Now the Fed can cut interest rates again. Come on Zero.
November 18th, 2008 at 11:43 am
Steve Barry is right. Buy puts far out of the money. From the testimoney today they were dening banks applications to TARP and recommending to find and M&A partner. This could only be because more banks were asking for money than there was funding.
Severe market crash is inevitable at this point just don’t know when. My call options are probably worthless.
November 18th, 2008 at 11:52 am
@ jmborchers
Wow, that is quite a change in outlook. I recall you were one of those looking for a near term recovery.
I think the option activity on GLW yesterday must have been covered call writing…
November 18th, 2008 at 12:14 pm
Wow. So many people, so wrong, so much of the time. PPI down = End of Times. WTF? Oh no! Most people have hundreds of dollars left over at the end of the month due to the pop of the commodity bubble. We’re all going to die!
PPI down = end of commodity bubble = good news unless you own commodity futures bought at prices where you were soundly fleeced and you still haven’t accepted that fact.
Investment bankers and investment managers are sheep and lemmings. They will all go over the cliff together. Consumers are cockroaches. Their survival instincts will cause them to eventually prosper in the ruins of the idiots who lost fortunes in high finance. Roubini has no sense for the common person. He is a genius when it comes to the failings if the investment banker class.
November 18th, 2008 at 12:17 pm
I bought AAPL $50 puts expiring Friday. A huge fall is inevitable I just don’t know when. If you were watching the testimoney it was quite clear why such a thing would occur to tell them to not file a TARP application and go elsewhere first.
November 18th, 2008 at 12:29 pm
PPI down was no deflationary report, core was still up. Commodity prices have just fallen but it still cost the same thing to make everything else!
There’s no deflation, just people selling overpriced investments…
November 18th, 2008 at 1:09 pm
From the link:
“Among finished goods in October, prices for energy goods fell 12.8 percent compared
with a 2.9-percent decline a month earlier. The index for consumer foods edged down 0.2
percent following a 0.2-percent increase in the prior month. Prices for goods other than foods
and energy rose 0.4 percent for the second consecutive month.”
SO…
How long before the deterioration in prices for energy goods (12.8%) and consumer foods (0.2%) trickle into the “other than” category… timeframe wise…?
It would appear to me that the deterioration in energy should accelerate from here, as we havent even gotten into the huge drop as of the November data. Also, it appears that consumer food price deterioration seems to be lagging big time, as the food prices on grocery store shelves didnt start to reflect the past years price inflation until late this summer… when should it be reasonable to expect to see those deteriorating effects reflected at the grocery store?
We’ve seen the deterioration in energy prices trickle down to the pump rather quickly. How long until the consumer sees a similar effect at say, Kroger?
OT:
@Borchers… I smell capitulation in you today.
November 18th, 2008 at 1:35 pm
So aside from the near-term or intermediate-term discombobulations of the markets, and frantic scrabbling back and forth amongst the traders, what kind of companies should longer-term investors be looking for?
I’m thinking, in a deflationary environment (which is, whether one believes we are there yet or not, clearly where we are heading before we make the big U-turn toward hyperinflation down the road a ways, when all that debt we are creating today needs to be washed away …) that one would like to invest in companies with little or no debt, that have high recurring raw material costs (that one would expect to see diminish as inflation persists), and a market that has at least some component of required-ness …
Maybe beer distributors? Food producers? Any other ideas?
November 18th, 2008 at 1:45 pm
I have stashed my rally cap away for today.
@ constant: beer distributors? Food producers?
We call that the “McCain Plan”.
Borchers changes his call more often than Barry changes his shirts…
Maximum frustration out there…
November 18th, 2008 at 2:26 pm
As to my Company, we have had to decrease priced three times over the last three months to maintain our current revenues - and our competitors are doing the same. Perhaps some of you guys should get outside your glass boxes and look at the sales going on.
As a retail guy (and one who speaks to other retail guys), I can tell you this is the most difficult retail envirnoment in years or decades. The PPI will go down over the next few months and there is and will be the threat of deflation. As a direct result of the cutting of our prices, we let two people go and now the ones left must work harder. This same story is being repeated over and over again - its just that it isn’t in the numbers yet.
November 18th, 2008 at 3:49 pm
jmborchers Says: (November 18th, 2008 at 12:17 pm)
“I bought AAPL $50 puts expiring Friday. A huge fall is inevitable I just don’t know when… ”
What is rationale behind this? Do you expect warning between now and Friday?
November 18th, 2008 at 4:13 pm
I bought RIMM 45 puts at the close, but only because I’m holding RIMM long and wanted to see if today’s little pop holds up.
As for AAPL, if they warned tomorrow (unless it was *really* bad) that damn stock would probably go up, it is in world of its own.
November 18th, 2008 at 6:26 pm
“A 24.9% decline in gasoline prices.”
Look on the bright side. It is more disposable income to the consumer who is in large part now trying to reduce their debts. Then that “extra money” can be spent to effect us all. And they’ll be more willing to take on new debt. Unless of course they’re using it to continue a lifestyle they can’t afford because they can’t use their charge cards. Did we learn anything?
November 18th, 2008 at 8:18 pm
@austincompany
Thanks for the info. We hear you. Good luck to you and hang in there. We all need to pull together at times like these.
Mitch