The Producer Price Index Unexpectedly Declines in May

Tyler Mitchell By Tyler Mitchell Jun5,2024 #finance

The producer price index (PPI) was not just soft in May, it went negative for the month, 0.3 percentage points below the Bloomberg consensus expectation.

The Bloomberg Econoday consensus for the Producer Price Index was +0.1 percent.

The Fed will be pleased that the BLS reports the PPI for May is -0.2 with all the key readings flat to negative for the month.

PPI Final Demand Month Over Month

  • Overall: -0.2 Percent
  • Goods: -0.8 Percent
  • Services: -0.1 Percent
  • Food: 0.0 Percent
  • Excluding Food and Energy: 0.0 Percent

PPI Details

  • Final demand goods: Prices for final demand goods fell 0.8 percent in May, the largest decline since moving down 1.2 percent in October 2023. Leading the May decrease, the index for final demand energy dropped 4.8 percent. Prices for final demand foods edged down 0.1 percent.
  • The index for final demand goods less foods and energy advanced 0.3 percent.
  • Nearly 60 percent of the May decrease in the index for final demand goods can be
    traced to a 7.1-percent decline in prices for gasoline.
  • Final demand services: Prices for final demand services were unchanged in May after increasing 0.6 percent in April.
  • In May, the indexes for final demand trade services and for final demand services less trade, transportation, and warehousing rose 0.2 percent and 0.1 percent, respectively. Prices for final demand transportation and warehousing services fell 1.4 percent.

PPI Final Demand Year-Over-Year

Year-Over Year Details

  • Final Demand: +2.2 Percent
  • Final Demand Goods: +1.6 Percent
  • Final Demand Services: +2.6

Services impacts the PPI more than goods. It’s the services number the Fed will pay attention to the most.

Right now, services are mostly in a holding pattern. However, the Fed will be pleased with the report given the month-over-month readings are zero or negative across the board.

The CPI is Flat for the Month, but Rent is Up Big Again

Yesterday, I noted The CPI is Flat for the Month, but Rent is Up Big Again

The CPI report was softer than consensus expectations as well. I called the number on the nose, but not the way we got there.

Owners’ Equivalent Rent and Rent of Primary residence were each up another 0.4 percent in May.

That marks the 33rd consecutive increase of at least 0.4 percent for both.

I expected a flat CPI this month with rent and OER pulling back a bit. Had they fallen, we would have had a negative CPI.

At some point this year, I believe rent will abate. If not, the Fed is going to have one heck of a time bringing down the year-over-year CPI currently 3.3 percent.

The Fed Eyes Just One Interest Rate Cut This Year, Totally Confused About 2025

The Fed FOMC meeting was yesterday. I commented The Fed Eyes Just One Interest Rate Cut This Year, Totally Confused About 2025

I will take the over. A July cut seems unlikely, but it’s possible. If so, look for cuts in July, September, and a third one in December.

If there is no cut in July, I will go for September and December although three cuts are possible given the Fed meets shortly after the election in November.

The data is deteriorating much faster than economists and the Fed realize, except for a Bizarro Jobs Report for May – Payrolls Rise 272,000 Employment Drop 408,000

Payrolls vs Employment Gains Since May 2023

  • Nonfarm Payrolls: 2,756,000
  • Employment Level: +376,000
  • Full-Time Employment: -1,163,000

In the last year, jobs are up 2.8 million while full-time employment is down 1.2 million.

To repeat, I think the Fed will get in 2-3 rate cuts this year with the consensus at 1.

Tyler Mitchell

By Tyler Mitchell

Tyler is a renowned journalist with years of experience covering a wide range of topics including politics, entertainment, and technology. His insightful analysis and compelling storytelling have made him a trusted source for breaking news and expert commentary.

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