The Producer Price Index increased 1.0% in February on top of a huge 1.6% rise in January. Meanwhile, factory production dropped 0.1% for the month.

"Energy prices surged 7.4%, but crude oil and spot natural gas prices have fallen below the February average in the last few days," said Jim Haughey, Newport Communication's senior economist. "So it is possible that the worst is over, although it will take up to a month for this change to reach the pumps."
Excluding food and energy, the February index dropped 0.5% due to renewed retail discounting of motor vehicles and an outsize 6.3% plunge in computer prices. The annual inflation rate for this measure is 0.0% over the last five months. Strong productivity gains continue to offset wage increases and rising import prices.
"This gives the Federal Reserve Board room to cut interest rates one more time," Haughey said. "However, PPI inflation is still expected to rise to near 1.0% later this year with a strengthening economy."
Heavy truck prices were unchanged and only 0.5% higher than last September. Trailer prices rose 0.2% for the third consecutive month after near two years of steady prices.
Freight rates increased but not nearly enough to maintain margins with higher fuel costs. LTL rates were up 0.4% but are 0.6% lower than last November. TL rates rose 0.3%.
Haughey said that while factory production declined in February, total industrial production rose 0.1% with the contribution of increased energy production and more utility sales during the cold weather.
According to the Industrial Production Report from the Federal Reserve board, the output of consumer durable goods -- excluding energy goods largely delivered by pipelines -- also fell 0.1% to 1.8% less than a year ago. Much of the increase in consumer spending in the past year has been due to higher imports.
The only substantial increase in February was the 2.2% gain in electronics, mostly semiconductors. Electronics production gains typically do not add much to freight volume because of the heavy use of airfreight, and because the added production is mostly in the form of more power per box and not more boxes, according to Haughey.
Excluding electronics, manufacturing production has now fallen 0.6% below the 1997 average as assembly continues to move offshore to cut costs.
The outlook is for little, if any, gain in the next few months and then renewed growth rising to a 2-3% annual rate later in the year.