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PPI Falls in July; Jobless Claims Keep Creeping Up

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Thursday, August 11, 2022

More inflation and employment data are out this morning, a day after encouraging numbers from the Consumer Price Index (CPI), which catapulted indices out of bear territory for the first time since early this year. Weekly jobless claims and the sister report to CPI — the July Producer Price Index (PPI) — highlight the pre-market landscape, where we see the Dow +242 points at the hour, the Nasdaq +91 and the S&P 500 +28 points. Positive sentiment continues into a second day.

Final PPI on headline dropped notably to -0.5% month over month, down from the +0.2% analysts were looking for and the downwardly revised +1.0% for June. This is a big data point, which suggests wholesale pricing of goods has finally gotten some relief in our current market, which may further suggest supply chain issues are at last being ironed out in the domestic economy.

Stripping out food & energy costs, the “core” read, reached half of what was expected to +0.2%; ditto for ex-food, energy and trade — all of which are potentially volatile enough to distort monthly figures. The recent highs we’ve seen here go back to January 2021, which came in at a clean +1.0%. Bottom line: producer prices falling 150 basis points (bps) on headline — in one month — is as good an indication as any that inflation is starting to roll over.

We can see we’re still historically high on inflation, however, when we look at year-over-year numbers: headline +9.8%, +7.6% on core. The notable drops month over month are still there, from +10.5% and +8.2% respectively, but still several times above what the Fed considers “optimum.” Ex-food, energy and trade is +5.8% on headline, down from the +6.4% in June. March of this year saw our peak numbers on these metrics: +11.6% headline, +9.6% core and +7.1% ex-food, energy and trade. Not to the Promised Line yet, but definitely on the path.

Initial Jobless Claims rose week over week to 262K, though down from the 264K expected, to levels not seen since November of last year. However, the revision to the prior week was precipitous: from 260K originally reported to 248K this morning. For sure we’re off the 180K level we were seeing last spring, but if we’re plateauing here at the mid-200Ks, that’s still consistent with an historically healthy labor market. If we keep adding 10K+ new jobless claims week over week, however, we may get to a point soon where this does register some concern.

Continuing Claims grew +8K to 1.428 million from the previous week — again, above the low levels we’d seen (cycle low was 1.306 million back in May, which hearkens back to the late 1960s for longer-term jobless claims that low) — but still in overall healthy labor market conditions. Continuing claims report a week in arrears from new claims, so we may expect these figures to keep climbing, near-term.

What’s been particularly promising about the jobs market is that longer-term claims have not been following in lock-step with new claims. (This is perhaps less true with this morning’s data than in weeks past, so it’s possible we’re rolling over here, as well.) Meaning those Americans receiving pink slips one week aren’t taking too long to find themselves employed elsewhere, which would help account for the still-robust monthly non-farm payroll numbers we saw for July.

But weekly jobless claims are a finer-tuned scale on which to measure domestic employment, and with interest rates being cranked up and draining demand over time, it’s worth keeping a close eye on. If the labor market can remain somewhat strong during these times when prices are coming down, this would be a good indication the Fed is engineering a “soft landing” and avoiding a recession. On the other hand, if we see more consequential erosion in employment, perhaps we’d best prepare for a different outcome.

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