1. Economic Indicators: Introduction
  2. Economic Indicators: Beige Book
  3. Economic Indicators: Business Outlook Survey
  4. Economic Indicators: Consumer Confidence Index (CCI)
  5. Economic Indicators: Consumer Credit Report
  6. Economic Indicators: Consumer Price Index (CPI)
  7. Economic Indicators: Durable Goods Report
  8. Economic Indicators: Employee Cost Index (ECI)
  9. Economic Indicators: Employee Situation Report
  10. Economic Indicators: Existing Home Sales
  11. Economic Indicators: Factory Orders Report
  12. Economic Indicators: Gross Domestic Product (GDP)
  13. Economic Indicators: Housing Starts
  14. Economic Indicators: Industrial Production
  15. Economic Indicators: Jobless Claims Report
  16. Economic Indicators: Money Supply
  17. Economic Indicators: Mutual Fund Flows
  18. Economic Indicators: Non-Manufacturing Report
  19. Economic Indicators: Personal Income and Outlays
  20. Economic Indicators: Producer Price Index (PPI)
  21. Economic Indicators: Productivity Report
  22. Economic Indicators: Purchasing Managers Index (PMI)
  23. Economic Indicators: Retail Sales Report
  24. Economic Indicators: Trade Balance Report
  25. Economic Indicators: Wholesale Trade Report

The Producer Price Index (PPI) is a weighted index of prices measured at the wholesale, or producer level. A monthly release from the Bureau of Labor Statistics (BLS), the PPI shows trends within the wholesale markets (the PPI was once called the Wholesale Price Index), manufacturing industries and commodities markets. All of the physical goods-producing industries that make up the U.S. economy are included, but imports are not.

The PPI measures the average changes over time in the selling prices received by domestic producers.

The PPI differs from the Consumer Price Index (CPI) in terms of the composition of the goods and services covered, the types of prices collected and the extent of coverage of the services sector.

The PPI measures sales at all levels of output for U.S. producers. This includes sales of non-finished goods used along the chain of production and output. The CPI measures purchases of finished goods and services by urban households.

There are three stages of the PPI:

  •          Commodity Index tracks the average price change from the prior month for coal, crude oil and other commodities.
  •          Stage of processing index measures the prices paid for goods that are sold to manufacturers who will add value and use the goods to produce finished products.
  •          Industry stage measures the final stage of manufacturing output

 

Why the Producer Price Index is important

The PPI can serve as a leading indicator of ultimate price changes at the consumer level, and of inflation if the trend in the PPI is higher. Low inflation is good for stimulating consumer spending, corporate profits and ultimately the stock market. Increased inflation can be a sign of an overheating economy and potentially higher interest rates.

The PPI can provide analysts, business executives and investors with information about the trends in prices at various stages of the production process. This is helpful for businesses in making capital investment decisions, for analysts in tracking economic trends and for investors looking for clues as to future inflation.

 

Strengths of the Producer Price Index:

  • Most accurate indicator of future CPI
  • Long "operating history" of data series
  • Good breakdowns for investors in the companies surveyed (mining, commodity info, some services sectors)
  • Can move the markets positively
  • Data is presented with and without seasonal adjustment

 

Weaknesses of the Producer Price Index:

  • Volatile elements, such as energy and food, can skew the data.
  • Not all industries in the economy are covered.

Economic Indicators: Productivity Report
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