Friday data roundup: PPI defies CPI, UMich unexpectedly sours
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FRIDAY DATA ROUNDUP: PPI DEFIES CPI, UMICH UNEXPECTEDLY SOURS
Friday's data ran counterpoint to other recent indicators, suggesting that while inflation is indeed cooling, consumer expectations are increasingly burdened by uncertainties, particularly surrounding the upcoming presidential election.
The Labor Department's producer prices index (PPI) USPPFD=ECI bucked the trend by showing a September inflation reading that's cooling nearly across the board.
PPI, which tracks the prices U.S. companies get for their goods and services and the figurative factory door, were unchanged last month, following the 0.2% August advance, marking a welcome deceleration.
Consensus called for a nominal 0.1% monthly gain.
Year-over-year, headline PPI gained 1.8%, slightly cooler than the prior month's upwardly revised 1.9%, but coming in above the 1.6% analysts expected.
The core measure, with eliminates volatile food, energy and trade services, rose on monthly and annual bases by 0.1% and 3.2%, respectively, both 10 basis points lower than August's readings.
Digging below the topline, the price of goods actually fell 0.2%. Excluding food and energy, however, goods gained 0.2%.
Looking at intermediate (business-to-business) demand, unprocessed/raw materials plunged by 3.2%, but stripping away food and energy items, unprocessed goods gained 1.9%.
Services prices increased 0.2% on both a final (business to consumer) and an intermediate basis.
Taken together, the report shows PPI continues to cool, albeit not quite as quickly as the Fed might like.
"After an upside surprise from the September CPI report, producer prices came in below expectations and provide support for a 25bps rate cut in November," says Matthew Martin, senior U.S. economist at Oxford Economics.
Headline PPI is, after all, within one percentage point of Powell & Co's annual target. The underlying/core metric has a bit further to go:
Switching gears, the American consumer has soured unexpectedly in October, according to the University of Michigan (UMich).
UMich's preliminary take on current-month consumer sentiment USUMSP=ECI shed 1.2 points to land at 68.9, well below the 70.8 analysts expected.
Economist predictions that survey respondents' assessments "current conditions" and "near term expectations" would improve were wrong on both counts; they dropped by 0.9% and 2.0%, respectively.
Still, overall sentiment is 8% brighter compared with October 2023, a fact outpointed by Joanne Hsu, director of UMich's consumer surveys.
"With the upcoming election on the horizon, some consumers appear to be withholding judgment about the longer term trajectory of the economy," Hsu writes.
It's worth noting, however, that "current conditions" remains substantially below the trough that occurred in April 2020, amid the initial shock of mandated pandemic shutdowns.
Inflation views have shifted, with longer-term, 5-year expectations cooling to 3.0%, while shorter, one-year expectations heated up to 2.9%.
So how useful is the consumer inflation expectations metric as a predictor of inflation?
The graphic below shifts one-year inflation expectations forward by one year, and maps it against core CPI.
It would appear UMich survey participants don't have crystal balls, but they do demonstrate how expectations can become self-fulfilling prophesies. And they see core inflation dipping ever closer to the Fed's target within a year.
(Stephen Culp)
*****
FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:
U.S. STOCKS PUSH HIGHER, BANKS A BRIGHT SPOT - CLICK HERE
U.S. STOCK FUTURES MUTED AFTER MIXED PPI - CLICK HERE
FRENCH BUDGET: A LOOMING DILEMMA FOR BRUSSELS? - CLICK HERE
HOW THE EURO CAN FALL TO PARITY VERSUS DOLLAR - CLICK HERE
STOXX CALM, SET FOR SMALL WEEKLY GAIN - CLICK HERE
FUTURES POINT TO STEADY START, LOOK THROUGH FRENCH BUDGET - CLICK HERE
MARKETS TURN CAUTIOUS BEFORE UNCERTAIN WEEKEND - CLICK HERE
Inflation gauges https://reut.rs/402qpTE
UMich current conditions and expectations https://reut.rs/3Ya6H5U
UMich inflation expectations https://reut.rs/3NmldCl
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