CPI down, but not as much as PPI
The consumer price index fell 0.3 percent in October, reversing nearly the entire 0.4 percent gain posted in September. Energy prices dropped 6.3 percent helping to dampen the index. Excluding the volatile food and energy components, the CPI rose 0.2 percent, the same as the past three months. The chart below depicting year-over-year changes in the CPI shows a significant moderation in inflation with the CPI up 2.1 percent from October 2000. The core CPI, however, is more stable, with the yearly rise up 2.8 percent in October, not very different from the past few months.

The chart below shows year-over-year changes in services and goods prices. Clearly, commodity prices have been sliding because of the reduced prices for energy, although prices of other goods have been subdued. More interesting, though, is the fact that prices of services seem to have peaked mid-year and have since moderated as well. It is almost more important to see prices of services moderate, because they comprise a greater share of the CPI. On the whole, lack of inflation pressures will give the Fed greater leeway in determining monetary policy.

Production plunge
The index of industrial production fell 1.1 percent in October on top of a 1 percent drop in September. This put the yearly decline at 6.3 percent. Among major product groups, the weakest link is business equipment which fell 1.7 percent in October and is now down 11.9 percent from year ago levels. Construction supplies are now down 4.9 percent from a year ago, but consumer goods are only 2.2 percent lower than a year ago.

October's decline marks the 13th straight monthly drop in production. Twenty years ago, this might have been enough to topple the entire economy into recession right away. But manufacturing has become a smaller portion of an evermore service-focused economy. The National Bureau of Economic research, the organization that determines the peaks and troughs of the business cycle, have not yet officially announced the beginning of this recession. However, unofficially, they may be looking at March 2001 as the peak of the expansion.

Retail sales spurt
Retail sales jumped 7.1 percent in October, easily reversing the previous month's 2.2 percent drop. The spurt was due to a 26.4 percent gain at motor vehicle & parts dealers as automakers offered zero rate financing during the month. Excluding autos, retail sales gained 1 percent, reversing two-thirds of last month's 1.5 percent drop. But there's more to the story. Steep declines in gasoline prices dampened the dollar value of sales at gasoline stations, which posted a 6.4 percent drop in October. In order to get a better sense of the underlying improvement in retail sales, it is useful to look at nonauto sales excluding gasoline. In this case, sales jumped 1.8 percent, just about offsetting the 1.9 percent decline posted in September.

Steep declines in gasoline prices dampened the dollar value of sales at gasoline stations, which posted a 6.4 percent drop in October. In order to get a better sense of the underlying improvement in retail sales, it is useful to look at nonauto sales excluding gasoline. In this case, sales jumped 1.8 percent, just about offsetting the 1.9 percent decline posted in September.