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Fed Gets More Disinflation Evidence With Cool PPI, Rising Jobless Claims
In another constructive development for the disinflation narrative in the US, producer prices across the world's largest economy fell 0.5% in March from the prior month, below every estimate from more than four-dozen economists.
Consensus expected an unchanged print. The range of guesses was -0.3% to 0.3%.
February's MoM decline was revised to show no change from the prior month. March's drop was the largest since the fleeting deflationary impulse that accompanied the original pandemic lockdow
Your wording of the last paragraph brings tsunamis to mind. Right now a little kid playing on the beach is running up to his parents. “Hey Mommy, Daddy, look! The ocean went away!”
There probably is not a lot of time before the recession strikes. A lot of hawks are going to get their wings clipped pretty soon. Its hard to say what the Fed will do after May. It will not surprise me to see fed funds with a 1 handle in the latter half of 2024 though.
I would love to be pointed to a good comparison of PPI and CPI.
From what I see, PPI and CPI track each other fairly well, with PPI having much larger amplitude; see YOY chart. https://fred.stlouisfed.org/graph/fredgraph.png?g=12sHT (I hope these chart links work, but you can just go make them at FRED.)
The biggest difference between PPI and CPI component weights is that PPI does not include shelter, while CPI is 34% shelter.
Thus PPI and CPI ex-shelter track each other even better; see chart. https://fred.stlouisfed.org/graph/?g=12sIh
PPI and CPI non-durable goods track better yet. https://fred.stlouisfed.org/graph/fredgraph.png?g=12sKe Better than PPI and CPI durable goods.
Historically, PPI YOY hardly ever declines from positive to zero without continuing to negative. When PPI YOY is a substantial negative (below negative mid-single-digit) CPI ex-shelter usually goes negative.
A peak and decline in PPI YOY is sometimes associated with a recession, but not closely enough (hit rate and timing) to make it a useful indicator, in my opinion.
Anyway, I think the PPI YOY trend is promising on the inflation ex-shelter front. Shelter YOY seems to peak around when actual prices (Case-Schiller) YOY goes negative, which seems imminent.
My base case is the Fed does 25bp in May and then moves to the sidelines, inflation continues to decline on a path to reach 2% in the coming year, that the labor market weakens on a lag with UE exceeding 4% later this year, and that weaker demand and narrowing margins make up for the still-low UE rate.
+1
As I read this and recalled a couple other posts a while back, something interesting occurred to me. When people of limited means get laid off, they probably file for unemployment as soon as they can. They are the heart of the filing data. On the other hand, higher level managers who receive full pay severance for some months don’t file because it’s a hassle, the money isn’t really needed (except to pay for COBRA), and they don’t really want to look for a job right away. Both my daughter and her husband were making six figures as senior directors and are now laid off, don’t plan to make a serious run at a new job until their child goes back to school in the fall. People like this don’t show up in the claims data, something which likely skews these many employment reports. No reason anyone will know they are laid off. Has anyone tried to study this issue of varying responses to being laid off and how it effects our economic metrics?