The Producer Price Index rose 0.25% in April from March and at a 2.3% rate year-over-year, the Bureau of Labor Statistics reported today, May 11. This index measures prices at the wholesale level–changes at that level eventually show up in the prices that consumers pay so they’re an indicator of the direction of future consumer inflation. Economists surveyed by Bloomberg had expected producer prices to rise 0.3% in April on a monthly basis and 2.5% on a yearly basis. In March, producer prices slipped 0.5% on a monthly basis and rose 2.7% on a yearly basis.
The annual 2.5% rate is the lowest annual increase in producer inflation in more than two years. So in these numbers, we’ve got clear evidence that inflation is falling.
But, also this morning, initial claims for unemployment for the week ending May 6 rose 22,000 to a seasonally adjusted 264,000 claims. That was above expectations from economists surveyed by Reuters for 245,000 initial claims for unemployment. The number of workers filing new claims for unemployment hit a 1-1/2-year high.
The four-week moving average of initial claims, which strips out week-to-week volatility, rose 6,000 to 245,250, the highest level since November 2021.
Economists say claims in a 270,000-300,000 range would signal a deterioration in the labor market. So last week’s surge takes the labor market to the edge of an upward trend in unemployment that could signal that the economy is headed into a recession.
So which is it, Goldilocks?
Is the economy just right? With inflation creeping downward and unemployment managing to remain just short of recession levels?
Or is the economy still too hot with inflation staying too strong?
Or is the economy turning too cold because the Federal Reserve’s interest rate increases amount to more “cure” than the economy can stand?
Of course, investors and traders don’t know the future–and we don’t know what the next data points will show.
But there’s also the very big problem that there isn’t any clear definition of what “just right” might be. Is it “just right” if inflation falls only to 3% and growth slows but the economy dodges a recession? Would it be a “better” just right if inflation fell to closer to 2%, the Fed’s target, and the economy experienced a mild recession? Or how about a balance of more inflation and more growth? That might strike the stock market as “just right.”
And you’ll note that the Goldilocks story doesn’t include roles for the Evil Wolf of a regional banking crisis or the Dark Queen of a debt ceiling credit default.
As of 2 p.m. New York time today, May 11, the Standard & Poor’s 500 was down 0.57% and the Dow Jones Industrial Average was lower by 1.10%. The NASDAQ Composite had edged higher by 0.08% and the NASDAQ 100 was ahead 0.38%. The small-cap Russell 2000 was off 1.04%.
The CBOE S&P 500 Volatility Index was up 3.01% to 17.45.
