Price Increases, or Margin Squeezes?

Fascinating chart from Kevin Depew over at Minyanville, massaged from the PPI data released this AM: 

Kevin takes the spread between the index of Finished Goods, less the cost inputs of the raw materials (Crude Goods).

The spread has flipped negative in 2003, and has significantly widened since then. This suggests that inflationary price pressures are building, mostly due to higher raw material costs. Ordinarily, there is often a lag between pass-through costs, and pricing pressures — but the current situation represents an extreme.

This leaves manufactures with one of two options: They can raise prices, or they can suffer margin pressure.

Click for bigger chart


Kevin adds:

"This shows increasing pressure on producers to rein in raw materials costs that are not keeping pace with finished goods costs. In other words, the pass through of increasing costs is reaching extreme levels. Virtually every conference call we listen to says the same thing. That is why the consumer is so important now. Corporate profits are getting crushed right as we head into a consumer recession."

Good stuff — thanks, Kevin.

Category: Consumer Spending, Economy, Inflation

What Does Consumer Sentiment Mean In Terms of Recession

Category: Economy, Psychology

Crude Oil = $129

Category: Energy

Producer Price Index April 2008 = 0.2%, 0.4% Core

Category: Commodities, Data Analysis, Energy, Inflation

What Do the Leading Economic Indicators Reveal?

Yesterday, we saw the release of the Leading Economic Indicators (LEI). It was the second consecutive month of a slight rise in the index. I have not been a fan of the outfit behind LEIs — the Conference Board — as they have, in a very BLS-like manner, continually modified the leading indicators in a…Read More

Category: Data Analysis, Economy

Buffett Sees ‘Plenty’ of European Acquisition Targets

Huge, nearly an hour long Buffett video, via Bloomberg:

click for  l o n g  video

Billionaire Warren Buffett speaks at a news conference in Frankfurt at the start of a four-city European tour about his investment strategy and plans to add European companies to the portfolio of his investment and holding company Berkshire Hathaway Inc. Eitan Wertheimer, president of Israel’s Iscar Metalworking Cos., also speaks.

See also:  Buffett’s Shopping Trip to Europe Draws a Crowd


Buffett Sees ‘Plenty’ of European Acquisition Targets: Video
Bloomberg, May 19 2008

Category: M&A, Valuation, Video

Researchers Wanted

Category: Taxes and Policy

USA National Gas Temperature Map

Category: Consumer Spending, Energy

S&P500 Profits Ex 3 Oil Cos = Awful

Category: Earnings, Energy, Valuation

Survey: Is the U.S. economy on the rebound?

Category: Contrary Indicators, Economy, Psychology