Thursday, April 13th, 2023
Don’t look now, but the Fed’s interest rate increases over the past year — 475 basis points (bps) in the past 13 months — are now having a demonstrable impact on inflation in our domestic economy. Ahead of today’s opening bell, Producer Price Index (PPI) numbers for March are out, and the results are far below expectations. And, while pre-market futures have abated since the initial moments following this report’s release, they’ve still grown notably on the news.
PPI for March on headline, month over month, reached -0.5% — far lower than the 0.0% expected (which is also the same as the upwardly revised February PPI level) — marking a cycle low, and the deepest cut since the -0.3% we saw back in July of last year. On core (stripping out food and energy costs), we hit -0.1% — a big drop from the +0.3% consensus expectation. Ex-food, energy and trade, we’re at +0.1% — still notably off projections.
Where the rubber hits the road is in year-over-year accounts, and here we see a precipitous fall to +2.7% — 220 bps lower than the upwardly revised +4.9% the previous month. This is more than 4x lower than the 40-year highs we were registering a year ago: +11.7% in March of 2022. Core PPI year over year hit +3.4% — 100 bps lower than anticipated and nearly 3x lower than the +9.7% high we saw last year. Ex-food, energy and transportation, we’re +3.6% — still a cycle low.
A month ago, when we were seeing stubborn CPI and PPI data, we understood one of two things were in the process of happening: either inflation metrics were proving resistant to higher interest rates from the Fed, or we were experiencing a temporary wrinkle in data before the expected drops lower manifested themselves. Well… this morning we see things have clearly manifested.
Initial Jobless Claims were higher than projected: 239K versus 235K estimated, and bigger than the unrevised 228K the previous week. In case you’d been on hiatus over the past week or so, benchmark revisions to weekly jobless claims have at last caught up with reality — we had been sub-200K for an extraordinarily long time, and sub-200K is commensurate with a very robust labor market. We now see there is weakness here as well, although 239K new claims is far from a dire workforce situation.
Continuing Claims dipped a tad to 1.810 million from 1.823 million previously posted. That previous-week figure was the highest since December 2021, and before the benchmark adjustment we were sub-1.7 million — another indication that the labor market is robust. We’ve now dispelled ourselves of these notions for now, and markets have seen an opportunity for bulls to make a move higher.
We were tepid in pre-market indices directly prior to these economic prints, and now we’ve gone past that initial bump in futures: the Dow went from +10 points to +75 now, the S&P 500 moved from +5 points to +15 and the Nasdaq +35 points to +75. These are indications that perhaps the extra 25 bps hike baked into the cake for the next Fed meeting is now somewhat destabilized. Tomorrow we get Retail Sales and bank earnings.
Questions or comments about this article and/or its author? Click here>>
Image: Bigstock
PPI +2.7% YoY, Back Near Pre-Covid Levels
Thursday, April 13th, 2023
Don’t look now, but the Fed’s interest rate increases over the past year — 475 basis points (bps) in the past 13 months — are now having a demonstrable impact on inflation in our domestic economy. Ahead of today’s opening bell, Producer Price Index (PPI) numbers for March are out, and the results are far below expectations. And, while pre-market futures have abated since the initial moments following this report’s release, they’ve still grown notably on the news.
PPI for March on headline, month over month, reached -0.5% — far lower than the 0.0% expected (which is also the same as the upwardly revised February PPI level) — marking a cycle low, and the deepest cut since the -0.3% we saw back in July of last year. On core (stripping out food and energy costs), we hit -0.1% — a big drop from the +0.3% consensus expectation. Ex-food, energy and trade, we’re at +0.1% — still notably off projections.
Where the rubber hits the road is in year-over-year accounts, and here we see a precipitous fall to +2.7% — 220 bps lower than the upwardly revised +4.9% the previous month. This is more than 4x lower than the 40-year highs we were registering a year ago: +11.7% in March of 2022. Core PPI year over year hit +3.4% — 100 bps lower than anticipated and nearly 3x lower than the +9.7% high we saw last year. Ex-food, energy and transportation, we’re +3.6% — still a cycle low.
A month ago, when we were seeing stubborn CPI and PPI data, we understood one of two things were in the process of happening: either inflation metrics were proving resistant to higher interest rates from the Fed, or we were experiencing a temporary wrinkle in data before the expected drops lower manifested themselves. Well… this morning we see things have clearly manifested.
Initial Jobless Claims were higher than projected: 239K versus 235K estimated, and bigger than the unrevised 228K the previous week. In case you’d been on hiatus over the past week or so, benchmark revisions to weekly jobless claims have at last caught up with reality — we had been sub-200K for an extraordinarily long time, and sub-200K is commensurate with a very robust labor market. We now see there is weakness here as well, although 239K new claims is far from a dire workforce situation.
Continuing Claims dipped a tad to 1.810 million from 1.823 million previously posted. That previous-week figure was the highest since December 2021, and before the benchmark adjustment we were sub-1.7 million — another indication that the labor market is robust. We’ve now dispelled ourselves of these notions for now, and markets have seen an opportunity for bulls to make a move higher.
We were tepid in pre-market indices directly prior to these economic prints, and now we’ve gone past that initial bump in futures: the Dow went from +10 points to +75 now, the S&P 500 moved from +5 points to +15 and the Nasdaq +35 points to +75. These are indications that perhaps the extra 25 bps hike baked into the cake for the next Fed meeting is now somewhat destabilized. Tomorrow we get Retail Sales and bank earnings.
Questions or comments about this article and/or its author? Click here>>