Producer costs be a part of the parade of yellow flags
– by New Deal democrat
I usually don’t pay an excessive amount of consideration to producer costs, however there are a few exceptions. One exception is that generally producer costs lead shopper costs by a lot of months. That hasn’t been the case lately. However the different exception is that producer costs can inform us whether or not revenue margins are being squeezed or not. *That* is related in the meanwhile.
Let me begin with the month-to-month change in uncooked commodity costs (gold, /2 for scale), remaining demand producer costs (blue), and shopper costs (purple) for the previous two years:
A very powerful element of the above graph is that the downdraft in commodity costs – that are essentially the most upstream costs of all – seems to have ended, as the massive declines of 2023 abated besides for 3 months in 2024. And there have been no declines prior to now three months. So there isn’t a tailwind possible to assist customers downstream (okay, I’m mixing metaphors however you get it).
Now right here’s the YoY look, going again three years:
Once more, we see huge declines within the 12 months after June 2022, the height for oil costs after the Ukraine invasion. For the previous 9 months, commodity costs have been steady on a YoY foundation.
Much more importantly, observe that remaining demand producer costs – those simply earlier than services are completed for consumption – have risen YoY for the previous a number of months, from 2.1% in September to three.3% final month. That compares with 2.7% for the final month reported within the CPI.
Producer costs rising quicker than shopper costs means producers can’t go on their value will increase to customers, which has the impact of compressing their earnings. And that seems to be taking place, as instructed by the newest precise + estimated earnings for Q3 and This fall of final 12 months as reported by publicly traded companies (by way of FactSet):
Earnings barely elevated in Q3, and to date are estimated to barely improve once more in This fall. And when company earnings stall, CEO’s begin searching for methods to chop prices.
We’ll see what occurs with shopper costs tomorrow, however that is yet one more yellow flag suggesting recession dangers are rising (albeit nonetheless comparatively low) for later in 2025.
September producer costs nearly totally benign; little or no upward strain within the pipeline, Offended Bear by New Deal democrat
