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  • Writer's pictureRealFacts Editorial Team

Soft PPI and Jump in Jobless Claims


Government building

The surge of economic data continued on Thursday as the initial jobless claims report showed a significant rise of 13,000, reaching 242,000 in the week ending June 8. This jump lifted the four-week average to 227,000 from 222,250, marking the highest level since last August. The rise in jobless claims suggests a potential softening in the labor market, which could prompt a shift in Federal Reserve policy. 


Additionally, the producer price index (PPI) fell by 0.2% in May, well below the estimated 0.1% increase. This marks a 2.2% annual rise, below the 2.5% estimated increase. The core PPI, excluding food and energy, remained unchanged from April, falling below the expected 0.3% increase. The 12-month core inflation rate of 2.3% also came in below the forecasted 2.4%. 


This favorable inflation data came just one day after the Federal Reserve's recent projections from their FOMC meeting, which indicated the possibility of only one rate cut this year. Despite these projections from the Fed, the market is now pricing in a 69% likelihood of two quarter-point rate cuts this year. This high likelihood is largely attributed to the combination of a smaller-than-expected increase in core CPI and unchanged core PPI, indicating a potential disinflationary trend. 


Jerome Powell, however, emphasized that one positive inflation report is insufficient for the Fed to confidently start cutting rates. While referencing the recent CPI report he said, “We do see today's report as progress and as, you know, building confidence. But we don't see ourselves as having the confidence that would warrant beginning to loosen policy at this time.” 


Investors should monitor economic indicators that suggest a slowdown in inflation, as these will help the Fed feel confident about cutting rates as early as September. One key indicator to watch is the core PCE prices, the Fed’s primary inflation gauge. Morgan Stanley economists now forecast a modest rise of 0.12% in core PCE prices for May, influenced by mixed signals from various components of the PPI and CPI reports. If core PCE shows this modest rise or an even smaller increase, it could fuel further market gains.

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