Economy Showed Signs of Cooling Last Month Weekly filings for jobless claims rose to highest level since 2021 and supplier inflation moderated in April
- The producer-price index, which generally reflects supply conditions across the economy, increased 2.3% in April from a year earlier, the Labor Department said Thursday. That marked the slowest pace since January 2021 and an easing from March’s 2.7% rise. Producer prices rose 0.2% in April from the prior month, compared with a revised decline of 0.4% in March. The Labor Department attributed most of last month’s increase to higher supplier services prices. April’s increase matched a 0.2% average monthly rise in the two years before the pandemic.
Core PPI-Final Demand is up only 2.0% a.r. in the last 3 months after +4.8% in the previous 3 months. Core Goods: +2.9% vs +4.0%. PPI Services: +2.0% vs +2.4%. Inflation within the pipeline is also slower.
PPI-Final demand, only available since 2011, has been tightly correlated with CPI, suggesting a CPI reading below 3% coming our way!
Not so tight on core indices (e.g. 2015-17) but the downward pull is there:
The downward pull is as interesting when only looking at services inflation: the largest gap since 2011 was 2%. It’s now 3.8%.
A 2% gap by September would mean +0.2% average monthly gains in CPI Services in coming months. It was +0.25% in April, nearly half is previous 3 months +0.47% average advance. Note that PPI data can be revised.
Wages have not slowed much yet but PPI Services has eased without help from wages before (e.g. 2015, 2019)
Recall that April’s Supercore Services CPI (ex-energy services and rent) was up a low 0.1%.
Source: @TheTerminal, Bloomberg Finance L.P.
Supercore inflation was dragged down by negative prints in medical care and transportation. PPI transportation and warehousing was down 1.7% in April and is -11.1% annualized YtD.
- Worker filings for unemployment benefits rose by 22,000 to a seasonally adjusted 264,000 last week, the highest level since October 2021, according to a separate Labor Department report. Jobless claims totals are above prepandemic levels, but still historically low.
The dashed line indicates the level on claims before the pandemic.
FYI, bond traders are heavily on the bearish side. David Rosenberg says that “The only time historically when the bearish bet from the Commitments of Traders report was so one-sided was back on September 25th, 2018”.
Again FYI, CPI YoY vs 10Y Ts, understanding that CPI data comes in about one month late.
Fed Official Signals Support for Further Rate Increases Federal Reserve governor Michelle Bowman says there hasn’t been sufficient evidence of a labor market or inflation slowdown.
(…) At the Fed’s meeting in March, most officials projected holding rates steady after the latest increase, in part because they expect banking-system stresses following the failures of three midsize lenders this year to further tighten financial conditions.
But a substantial minority of Fed officials expected rates would need to rise by a further quarter point from current levels if the economy performed in line with their expectations.
Ms. Bowman’s remarks suggested she was part of that group favoring higher rates. “Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time,” she said in her remarks in Germany.
Ms. Bowman said she would be looking for “consistent evidence that inflation is on a downward path” to determine whether interest rates were at a sufficiently restrictive level. The most recent readings on inflation and employment released over the past week, she added, “have not provided consistent evidence that inflation is on a downward path.”
Ms. Bowman said she expected banks to continue tightening lending standards as they face higher funding costs and fewer sources of funding following the recent banking failures. She said recent stock-price declines for other regional banks were adding to that uncertainty. (…)
Investors in interest-rate futures markets in recent days have seen a relatively low probability—around 10% on Thursday—of an interest-rate increase next month, according to CME Group. (…)
An extended period of high interest rates and an inverted yield curve could put more stress on banks, but would be necessary if inflation stays stubbornly high, Minneapolis Federal Reserve President Neel Kashkari said on Thursday.
There is some evidence high inflation “is coming down, but so far it’s been pretty darn persistent – that means we are going to have to keep at it for an extended period of time,” Kashkari said during an event at Northern Michigan University in Marquette, Michigan. (…)
But he did not sound very convinced, noting that inflation has surprised policymakers with its persistence, and that the data push him toward the “hawkish” side of the Fed policy spectrum. (…)
Deposit outflows after SVB collapse concentrated among ‘super-regionals’ – NY Fed study
Deposit withdrawals from U.S. banks following the collapse of Silicon Valley Bank were concentrated in around 30 “super-regional” institutions in the $50 billion to $250 billion range, similar to SVB, New York Fed researchers concluded in a newly released study.
Deposits among thousands of “community and smaller regional banks… were relatively stable by comparison” during March, the researchers found, with the largest, systemically important firms receiving the deposits that left the super-regional group.
(…) the NY Fed study points to what Fed officials themselves seemed to conclude early on – that the problems were focused in a discrete set of institutions. (…)
But even banks up to $100 billion in size “were relatively unaffected,” with the smallest institutions seeing virtually no change in deposits after the events of mid-March. Smaller firms tend to have higher levels of their deposits insured by the Federal Deposit Insurance Corp. (…)
Evidence of a festering crisis, however, seems to have diminished. Emergency borrowing from Fed facilities has declined, and the study concludes that much of it was “precautionary.” (…)
- PacWest Stock Sinks 23% After Disclosing Fresh Outflow Bank says in securities filing it lost 9.5% of its total deposits last week
(…) Research from the Federal Reserve Bank of New York on Thursday said that small banks have shouldered interest-rate increases and the recent market mayhem quite well. (…)
Western Alliance, another bank whose stock has been hammered hard since March, fell about 1%. The bank said total deposits were $49.4 billion as of Tuesday, up $600 million from a week earlier. (…)
- Bond Selloff Adds to the Pressure on Regional Banks Rising yields on debt threaten higher borrowing costs for lenders
The extra yield, or spread, on regional-bank bonds over U.S. Treasurys has risen in many cases by about 2 percentage points or more since early March, when the failures of Silicon Valley Bank and Signature Bank spurred a broad investor retreat from all but the largest U.S. banks. (…)
Oil Holds Two-Day Drop as Demand Concerns Offset SPR Refill Plan
(…) Crude has retreated by about 15% over the past month as the US economy moved closer to recession and China’s rebound continued to disappoint, threatening energy demand. That’s outweighed the lift from supply cuts announced by the Organization of Petroleum Exporting Countries and its allies. (…)
On Thursday, Energy Secretary Jennifer Granholm told lawmakers the US hopes to start refilling the nation’s strategic reserves after a congressionally-mandated drawdown ends next month. Earlier this week, the administration said it planned to begin purchasing oil for the SPR after finishing maintenance.