Wholesale prices rose more than expected in January. The headline PPI increase was .7% m/o/m vs the estimate of up .4% while the core rate increased by .5% m/o/m, two tenths more than anticipated. The y/o/y gains were 6% and 5.4% respectively vs 6.5% and 5.8% in the month prior y/o/y.
Goods price gains were led by a rebound in energy prices which rose 5% m/o/m, led by gasoline. Food prices were lower by 1% m/o/m. Taking both out saw core goods prices higher by .6% m/o/m and 5.6% y/o/y led by motor vehicles and soft drinks which many drink every day. They fell for chemicals.
On the services side, prices rose .4% m/o/m and 5% y/o/y. The BLS said this was driven by a 1.4% rise in ‘hospital outpatient care.’ If there is one thing that rarely deflates in price we know it is anything related to healthcare with the government in some fashion paying many of the bills. Auto/parts retailing saw higher prices too as did ‘portfolio management’ helped by the bounce in asset prices in January. Prices moved up too for ‘airline passenger services.’
Pipeline prices were mixed as core processed stuff fell .2% m/o/m but up 3.8% y/o/y. Unprocessed goods prices were up .9% m/o/m and by 2.3% y/o/y.
Bottom line, this data was just a reminder that the battle against inflation is not easy. Cost pressures basically got into every single nook and cranny of the economy over the past few years and it doesn’t just magically disappear, especially as many companies are still trying to recover lost profit margins. While the markets are certainly responding with the 2 yr yield now at 4.66% and the 10 yr at 3.84%, it is usually the CPI that does the market moving. The thing with CPI is it is likely that the services component is close to topping out but we’ll have to see that the goods side, after the disinflation seen, will bottom out soon.
Of note too, the 5 yr inflation breakeven is all of a sudden at the highest level since early November at 2.59%.
Headline PPI
Initial jobless claims totaled 194k, little changed with the below 200k print last week of 195k. The 4 week average was little changed at 190k. Continuing claims, delayed by a week in its reporting, rose 16k to just under 1.7mm and is the most since mid December and just below a one yr high.
Bottom line, so we have a continued modest pace of firing’s and a 6 week high in the number of people collecting claims, implying the slowdown in hiring (yes, the January payroll number was an outlier).
Initial Claims
Continuing Claims
Following another negative print in the NY manufacturing index, the February Philly index was below zero too and more so than expected. The print was -24.3 vs -8.9 in January and that was 17 pts less than expected. It’s also the 8th month in the past 9 that has seen contraction and is the weakest figure since 2009 not including Covid. New orders and backlogs were still below zero while the inventory component jumped which implies more weakness for new orders in coming months. Employment and the workweek fell m/o/m. Prices paid rose 2 pts but those received got cut in half.
The 6 month outlook fell to just above zero at 1.7 and cap ex expectations fell too.
Bottom line, in this no landing, soft landing or something more debate, at least the US manufacturing sector is in a recession along with the US housing industry.
Philly Mfr’g
Single family starts and permits in January continued to fall. Multi family starts dropped too but lifted a touch for permits. The bottom line here is easy with what is going on with single family homes as we know what’s going on. Multi family has a lot of supply coming which means that new construction is drying up and I’m hearing deals are getting canceled because the higher cost of capital is making some deals make less sense.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.