The Producer Price Index (PPI) measure of final demand wholesale inflation dropped -0.2% in December, and the yearly rate remained unchanged from November at +2.8%. As with the previous week’s Consumer Price Index, a drop in gasoline prices (-13.1%) was somewhat offset by an increase in natural gas (+2.3%), bringing energy costs for the month down by -5.4%, and contributing to a yearly -2.6% drop in energy costs. Overall, the drop in energy prices was offset by a +2.6% increase in food prices (+3.3% Y/Y), and the wholesale price of goods excluding the volatile food and energy sectors remained relatively unchanged for the month (+0.1%), and was up +2.5% for the year. Led by a -0.3% drop in trade services, which measure the margins received by wholesalers and retailers, service costs were down -0.1% for the month and increased +2.8% yearly.

The Empire State Manufacturing Survey for January showed slowing but continued growth, and the general business conditions index dropped from an upwardly revised 11.5 in December to 3.9, its lowest level since May 2017. The survey also showed less optimism for the six-month outlook, with fewer respondents planning on capital and technology expenditures and drops in expectations for future new orders and shipments. However, the Manufacturing Business Outlook Survey conducted by the Philadelphia Federal Reserve showed an unexpectedly strong increase from 9.4 to 17.0, with new orders increasing to their highest reading in six months and 46% of respondent expecting an increase in demand vs. 17% expecting a decrease.

Increases of +4.7% for motor vehicle manufacturing and +2.8% for nonmetallic mineral products helped push durable manufacturing up +1.3% in December, and overall manufacturing up +1.1% for the month for its largest gain since February 2018. Mining output was also up +1.5%, but a drop in demand for heating due to warmer than usual temperatures dropped utilities production by -6.3%, bringing overall industrial production to a +0.3% gain for the month, and up +4.0% compared to December 2017. Capacity utilization was 94.8% for mining (+7.8% above long run average), 76.5% for manufacturing (-2.0% below long run average), and 75.0% for utilities (-10% below long run average).