PPI Falls Unexpectedly, Jobless Claims Surge: Economic Reality Check
After a softer-than-expected CPI report triggered a buying frenzy in stocks and bonds (until Powell dampened the enthusiasm), today's PPI is anticipated to be mixed, with a smaller month-over-month increase but a higher year-over-year rise, surpassing the 12-month highs recorded last month.
Unexpectedly, the headline producer price index fell by 0.2% MoM in May (+0.1% MoM was expected) from a +0.5% MoM increase in April, marking the largest MoM drop since October 2023. Consequently, the YoY change in the headline index decreased from a revised 2.3% in April to +2.2%, significantly lower than the anticipated +2.5% YoY.
This remains the highest YoY since April 2023. Core PPI stayed unchanged MoM in May, cooler than the projected +0.3% MoM. On a YoY basis, Core PPI fell from +2.5%.
The drop in the headline index was mainly due to a sharp decline in energy prices and a slight deflation in services on a MoM basis.
It's worth noting we've seen these MoM declines in PPI before, primarily driven by energy costs. Thus, energy prices continue to be the key factor to watch.
Did we just get a glimpse of economic reality? The number of Americans filing for jobless benefits for the first time surged to 242,000 last week (up from 229,000 and well above the 225,000 expected), reaching the highest level since August 2023.
On a non-seasonally adjusted basis, claims skyrocketed, with the last three weeks showing the largest increase in claims since January. Notably, this surge closely mirrors last year's pattern (but not the previous few years, indicating it's not a seasonal pattern).
The increase in NSA claims was primarily driven by California. Could Newsom's $20 fast food minimum wage bill be having an impact? Perhaps it's just a coincidence.
Continuing claims also rose above 1.8 million Americans, the highest level since January.
Is the government's data finally aligning with reality? Does the Fed now "need" poor data to justify rate cuts before the election?