Initial jobless claims totaled 236k, 9k less than expected and compares with 238k last week. As a 234k print dropped out, the 4 week average was little changed at 244k. Continuing claims, delayed by a week, fell another 61k to the lowest level since 1988. See chart. Based on this visual, we historically have had only one way to go from here and it also highlights how far behind the 8 ball the Fed is and how much they missed this rate hike cycle. Employers continue to be reluctant to fire employees as its tougher to find good ones and they have high hopes for a tax and regulatory driven acceleration in growth.
Producer prices rose more than expected at all levels. The headline gain was .5% m/o/m, more than double the estimate of up .2%. The core level was higher by .4%, twice the estimate and also taking out trade saw prices spike by .7% vs the .2% forecast. The y/o/y gains for all three was 2.5%, 1.9% and 2.1% respectively. It was mostly the services side of the equation that drove the upside as the BLS said it contributed to 2/3 of the rise. Within this they said that 25% was “attributable to prices for securities brokerage, dealing, investment advice and related services which increased 6.6%.” I thought those prices are falling but whatever. They also cited higher prices for “guestroom rental, loan services, machinery equipment, parts, and supplies wholesaling, portfolio management, and airline passenger services.” On the goods side, cigarette prices was a main driver as they rose 2.2% while prices for food, natural gas and pharma products rose as well.
Bottom line, the demise of the inflation trade is a bit premature. To highlight in the commodity space, the Journal of Commerce index which I continuously refer to is down just 4.5% from its February high which comes after rising by 18% y/o/y. Also, services inflation is sticky and doesn’t just fade away. This said, the markets care more about CPI which we will see tomorrow. Rent growth is slowing and might keep a lid on it as housing makes up 40% of the index. The US 10 yr yield is unchanged on the day but up 1-2 bps from just before the number came out. European sovereign yields also moved higher.
One last thing, in case you missed it, Mario Draghi was basically heckled in the Dutch Parliament yesterday as they view the evils of monetary extremism similar to the Germans. He was accused of “raiding Dutch pensioners’ wealth” according to the FT. The FT also reported that “at one point following the ringing of bells in the Tweede Kamer, the lower House of the Dutch Parliament, one MP called out that the sound was the ‘end of your QE policies.’
Also the FT reported, and this is a good one, “MP’s finished the session with a gift of a solar powered tulip, to remind Mr. Draghi of the country’s famous asset price bubble and financial crisis in the mid 17th century. ‘We want you to look at this tulip before your meetings,’ said Pieter Duisenberg, the head of the MP’s committee, and son of Wim Duisenberg, the ECB’s first president.”