‘Cool’ Is An Extremely Relative Term

US producer prices rose half as much as expected in December, data out Thursday showed.

With traders having largely shrugged off an objectively harrowing CPI report on the (tenuous) contention that it was “as-expected,” a relatively cool read on PPI was certainly amenable to constructive spin.

PPI for final demand rose just 0.2% MoM in December (figure below). Consensus expected a 0.4% increase. The range, from nearly five-dozen economists, was 0.1% to 0.6%. The 9.7% YoY print, as alarming as it was, came in a touch below estimates.

The monthly gain on the final demand index was the smallest since November of 2020. Ex-food, energy and trade, the monthly increase was 0.4%, also short of consensus.

Obviously, the YoY read was another all-time high, underscoring pipeline pressures. But, again, markets are looking for incremental evidence of abatement, and December PPI arguably delivered.

The index for final demand goods fell 0.4% in December (figure below). It was the first decrease since April of 2020, and it came courtesy of a 3.3% drop in prices for energy. The index for final demand foods posted a 0.6% decline. Ex-food and energy, prices for final demand goods rose 0.5% last month, matching the slowest increase of 2021.

On the services side, the 0.5% increase for December was down markedly from November’s 0.9% increase. Over half of the gain was down to wholesaler and retailer margins.

Again, I’d suggest the read-through for risk is bullish. The cooler-than-expected headline print lines up well with the drop in ISM’s prices gauge to the lowest since November of 2020. Recall that the anecdotes from December’s ISM manufacturing report suggested the operating environment is slowly normalizing.

Meanwhile, jobless claims rose 23,000 to 230,000 in the week to January 8. That was considerably more than the 200,000 economists expected, but at this point, claims have taken a back seat to inflation when it comes to what “matters” for markets. The prior week was unrevised.

The four-week moving average remained near a half-century low. The figures came with the usual caveats about overinterpreting seasonally-adjusted data.

Ultimately, the market takeaway from Thursday’s economic reports was the cool PPI headline. It was welcome news, even as everyone resigns themselves to the notion that “cool” will remain an extremely relative term for the foreseeable future.