Fed Hawks Frozen As Producer Prices Fall, Jobless Claims Leap

There was more favorable inflation news out of the US on Thursday.

24 hours after handing markets a very benign CPI report, the BLS said producer prices fell in May, surprising economists who collectively expected a small advance from the prior month.

The 0.2% decline, the second drop in three months, came courtesy of the largest month-to-month decline on the goods side since October. The services gauge was unchanged.

The ex-food and energy gauge was flat from April against expectations for a 0.3% increase.

Needless to say, the result was flattered by the energy gauge, which fell nearly 5% MoM thanks to an even larger plunge on the gas index. That was 60% of the decrease on the goods side.

Still, the Fed will take it. So will markets. Coming as it did on the heels of the best CPI report of the pandemic era, Thursday’s release was icing on the proverbial cake. The YoY PPI final demand print, 2.2%, was well below the 2.5% economists expected.

Meanwhile, initial jobless claims jumped a third week. The 13,000 increase was among the largest of 2024.

At 242,000, the initial claims print counted as the highest since August and the four-week moving average, at 227,000, the highest since September.

Continuing claims likewise topped estimates at 1.82 million, the third-most since November of 2021.

If you needed more reasons to doubt the new Fed dot plot (in addition to the six detailed here), Thursday’s US macro data will suffice. A September rate cut is very plausible contingent, of course, on more inflation outcomes like those seen over the past 48 hours.