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PPI +0.6%, Double Expectations; Jobless Claims 473K

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Thursday, May 13, 2021

After yesterday’s colossal Consumer Price Index (CPI) print blew the doors off expectations — and helped send market indexes into a downward trajectory — this morning’s Producer Price Index (PPI) backed the high-growth narrative further upstream: +0.6% was the headline number, double expectations on the Street. This was down from the +1.0% reported a month ago; expectations had been for April to be a cooling off period, although whisper numbers had grown since the CPI release.

Subtracting volatile food and energy prices (the “core” read), we see a tick-up to +0.7%. Including trade, month over month, this number also hits 0.7%. Meanwhile, year-over-year headline PPI has just registered a new all-time high: +6.2%, far surpassing the previous record of +4.5% in September of 2011. Ex-food and energy year over year came in at +4.1%, and ex-food, energy and trade has set its own new high mark: +4.6%.

Though the PPI numbers are slightly less gaudy than yesterday’s CPI, relative to expectations, they fortify the understanding that we are beyond expecting inflation to affect the economy — it’s already here. As such, the market seems to be having an easier time absorbing this news: positive market indexes ahead of the PPI release have mostly stayed positive afterward, although there are signs things may be wavering…

Initial Jobless Claims have set a new pandemic low: 473K from an expected 500K, down 34K from last week’s upwardly revised 507K. Though we’ve seen more of a plateau here around the 500K level, we should keep in mind this is about a third of the weekly jobless claims we were seeing last summer. Continuing Claims of 3.655 million (from a week in arrears) was down from the upwardly revised 3.70 million the previous week.

In short, the economy is moving pretty much as expected. As metrics change, however, new concerns arise — interest rate hikes, tapering Fed buybacks, etc. — though it does not look as much like the sky is falling as much this morning. Then again, indexes are trading way down from a week ago (the Nasdaq is down 5% this week alone), so perhaps the richness of valuations has been tamed to a certain extent. Does this means buying is likely to resume on the back-half of this week?

Tomorrow morning will bring us even more important economic data: Retail Sales (+0.8% expected, from the very high +9.8% the previous month), Import Prices (+0.5% expected from +1.2% a month ago), Industrial Production (+0.8% estimated from +1.4% previously) and Capacity Utilization (74.9% from last month’s 74.4%). Should big upside surprises take out current expectations as they have in other areas this week, we may expect the growth/inflation narrative to gain an even stronger voice.

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