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PPI Wholesale Shrinks, Jobless Claims Jump

Thursday, June 13th, 2024

More key economic data hits the tape this morning. An hour ahead of the opening bell, the latest Producer Price Index (PPI) report for May comes a day after Consumer Price Index (CPI) data. Look at CPI as retail pricing and PPI as wholesale. Headline PPI swung to a negative: -0.2% from expectations of +0.1%, following a +0.5% reported for April and -0.1% in March. The last time we were lower than this on headline PPI month over month was -0.3% in October of last year — so we can see these numbers do fluctuate a bit.

Year over year, PPI reached +2.2%, again down 30 basis points (bps) from expectations. This is also down 10 bps from the slight upwardly adjusted +2.3% reported in April. It does represent the second “2-handle” on year over year PPI in a row, after 11 straight months below it. So as we wait for retail pricing (CPI) to approach the Fed’s optimal +2% inflation rate, we see on wholesale numbers (PPI) we’ve already been there for a while. (All numbers are reporting final demand.)

Core PPI last month was 0.0%. Expectations were for +0.2%, down from the upwardly revised +0.5% the prior month. The last time this metric was lower was in March of this year, -0.1%. Core year over year, +2.3% is below the +2.45% for April, which was revised down. Ex-food, energy and trade month over month was also 0.0%, down from the upwardly revised +0.5% previously. Ex-food, energy and trade year over year reached +3.2% — considering the rest of these shrinking numbers, this actually looks a bit high.

Final demand in goods dropped -0.8% last month. This downward trajectory was led by -7.1% in wholesale gasoline costs, -4.8% for Energy as a sector. (This depicts a rise in other energy source costs, including things like seed oil.) Prices for airline passenger services dropped -4.3%, which is relatively in-line with yesterday’ CPI figure on declining airline fare costs. Overall, this is another good print for those looking for inflation to come down without nose-diving into recession.

Initial Jobless Claims punched through expectations last week: 242K versus 225K forecast. This is the highest single-week of new jobless claims since the week of August 19th of last year. It’s also a notable jump from the previous week’s unrevised 229K. This may speak to some seasonal reflexivity, as last summer we saw jobless claims go as high as 261K in a week. By that fall and into the winter months, we’d actually gone near or below 200K several times.

Continuing Claims jumped to 1.82 million, after four straight weeks at 1.79 million. It’s also the highest week in longer-term unemployment claims we’ve seen since the third week in January. Again, we look for some volatility in these figures after months of steady, subdued unemployment reportage. This is not to say we’re going to spearhead through 2 million longer-term jobless claims any time soon, but with analysts having been scratching their heads for months over labor market strength, we may finally be seeing some signs of weakening. (Let’s wait for a few more weeks of data before reaching that conclusion, however.)

Pre-market futures are up on the Nasdaq, +185 points, but down for the Dow: -21. The S&P 500 fairly splits the difference at +22 points. For those who like to read the tea leaves in bond yield rates, we’re down on both the 10-year, 4.246%, and the 2-year: 4.678%. Yes, we remain inverted by 40 bps or so, but this has been the case for so long we scarcely even notice it anymore. The main thing to notice with a simple glance at bond yields is that when they go up, there is risk to upward-moving interest rates; when they go down, it increases the likelihood of a rate cut.

Finally, Broadcom AVGO shares are up +13% in today’s pre-market. This comes after the chipmaker reported fiscal Q2 earnings yesterday afternoon, where the company posted earnings of $10.96 per share outpaced the $10.79 projected and the $10.32 per share from the year-ago quarter. Revenues of $12.49 billion in the quarter amounted to a +3.7% positive surprise, and well above the $8.73 billion reported a year ago. This is another A.I. software play. Shares of Broadcom add to their +30% gains year to date, and the company announced a 10-for-1 stock split. For more on AVGO’s earnings, click here.

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