Economy: Signs Of Recovery

December 22, 2009--The economy showed subtle signs of recovery in November. Both industrial production and new residential construction posted healthy increases. Increased energy prices pushed the Consumer Price Index and the Producer Price Index upward.

Consumer Price Index
The Consumer Price Index (CPI) increased 0.4% in November after gaining 0.3% in October. The top-line CPI is 1.8% lower than its November 2008 level. The price index for energy jumped 4.1% in November after rising 1.5% in October and is 7.4% above its November 2008 level. Food prices rose 0.1%, but are off 0.7% compared to one year ago. Core prices, which exclude food and energy, were unchanged for the month. On a year-ago basis, the core CPI increased 1.7%. Inflation remains in check, despite loose monetary policy, as consumers and businesses remain spooked by the recession. Their reluctance to spend will keep demand low, especially as the labor market struggles to recover.

Producer Price Index 
As prices for food and energy increased in November, the Producer Price Index (PPI) gained 1.8%. In October, the PPI rose 0.3%. The core PPI, which excludes totals for food and energy, grew 0.5% in November. Energy prices surged, gaining 6.9% for the month, while food prices posted a 0.5% increase. Looking ahead, the PPI should remain in check, as weak demand continues because of the struggling labor market and low consumer confidence.

New Residential Construction
In a surprising report, the Census Bureau reported that new residential construction increased by 8.9% in November. Housing starts were at a seasonally adjusted annual rate of 574,000. Year over year, construction is down 12.4%. Permits for new housing decreased to 584,000 from 551,000.

Industrial Production
Industrial production rose 0.8% in November after not changing in October. The manufacturing and mining components both grew at 1.1% and 2.1%, respectively. However, the utility component decreased, falling at a rate of 1.8%. Overall, the rise in manufacturing was broad based. Capacity utilization increased to 71.6% from 70.6%. Going forward, industrial production should post small gains, especially if manufacturing continues its recent expansion.