In his podcast addressing the markets today, Louis Navellier offered the following commentary.
PPI Continues To Decline
On Thursday, the Labor Department announced that the Producer Price Index (PPI) rose 0.2% in April and 2.3% in the past 12 months. The big surprise was that the March PPI was revised to a decline of -0.4%, which helped the annual PPI dramatically decelerate to a 2.7% annual pace through March.
Food prices declined -0.5% in April, while energy prices rose 0.8%. The core PPI, excluding food, energy and trade services, rose 0.2% in April and 3.4% in the past 12 months.
Wholesale service costs rose 0.3% in April after declining a revised -0.1% in March. The Labor Department cited that 80% of the PPI inflation is attributable to wholesale service costs.
So the good news is the PPI continues to decline, but the bad news was the wholesale service costs rose to the highest level in six months in April, so the Fed will likely keep key interest rates high until wholesale service costs moderate.
Unemployment Claims Rise
With unemployment claims now running at a fast pace in over 17 months, the Fed should pause their interest rate hikes due to their unemployment mandate. The Labor Department also reported on Thursday that weekly unemployment claims rose to 264,000 in the latest week, up from 242,000 in the previous week.
This is the highest level of unemployment claims since October 30, 2021. Continuing unemployment claims also rose to 1.813 million, up from a revised 1.801 million in the previous week. The four-week moving average of weekly unemployment claims rose to 245,250, which is now at its highest level since November 20, 2021.
The Labor Department on Wednesday announced that the Consumer Price Index (CPI) rose 0.4% in April and 4.9% in the past 12 months.
Although the CPI was in line with economists’ consensus expectation, what got Wall Street excited was that Owners’ Equivalent Rent only rose 0.4% in April, down from 0.6% in March and 0.8% in February, so finally the fact that housing and rental prices are cooling is showing up in in the CPI report.
Also encouraging was that service prices, excluding energy and housing costs, rose only 0.1%. Food prices were unchanged in April, while energy prices rose 0.6%.
The core CPI, excluding food and energy, rose 0.4% in April and 5.5% in the past 12 months. Overall, Wall Street was excited that Owners’ Equivalent Rent is now running at the slowest pace in a year and that service costs are moderating.
Fed Cut in December?
I should add that the CPI will likely be falling dramatically in the next couple of months, since the big inflation monthly surges in May 2022 (0.9%) and June 2022 (1.2%) will be “cut off” in the next couple of months, so the annual rate of CPI inflation will likely decelerate to a 3% annual pace by July after the June 2023 CPI inflation is announced.
A 3% inflation rate is not low enough to get the Fed to cut key interest rates, but possibly by November, the annual pace of CPI inflation will be getting near the Fed’s 2% inflation target, which may convince the Fed to cut key interest rates at its December Federal Open Market Committee (FOMC) meeting.
Trump Torments The Biden Administration
Former President Trump in his New Hampshire Town Hall that was televised on CNN on Wednesday, urged the House Republican leadership to allow the federal government to default if the Biden Administration and Democratic leadership do not agree to budget cuts.
Specifically, Trump said, “I say to the Republicans out there — congressmen, senators — if they don’t give you massive cuts, you’re going to have to do a default.”
Then Trump added that “And I don’t believe they’re going to do a default because I think the Democrats will absolutely cave, will absolutely cave because you don’t want to have that happen. But it’s better than what we’re doing right now because we’re spending money like drunken sailors.”
When pushed to clarify his remarks by CNN moderator Kaitlan Collins, Trump said “Well, you might as well do it now, because you’ll do it later. Because we have to save this country. Our country is dying. Our country is being destroyed by stupid people, by very stupid people.”
Clearly, former President Trump loves to torment the Biden Administration and Democratic leadership. I do not think Trump wants the federal government to default, but he apparently relishes the negotiating leverage that House Speaker McCarthy has over the Biden Administration.
The Trade Deficit
The Atlanta Fed continues to estimate second-quarter GDP growth at a 2.7% annual pace. Furthermore, first quarter GDP growth is expected to be revised higher due to the fact that the March trade deficit declined sharply as imports declined 0.3% to $320.4 billion and exports surged 2.1% to $256.2 billion led by vehicles, crude oil, refined products and natural gas.
Interestingly, the trade deficit with China is now at the lowest level in three years as imports of consumer goods have declined. Furthermore, due to tariffs and trade tensions with China, the U.S. is now importing more goods from India, Malaysia, Taiwan, Thailand and Vietnam.
China’s exports in April declined 6.4% to $295 billion, which is raising fears that its economic growth is slowing. The official Chinese purchasing managers index declined to 49.2 in April, down from 51.9 in March.
Any reading below 50 signals a contraction. During China’s annual Labor Day holiday, Chinese travelers hit the road in masse, which is an encouraging sign that domestic consumption may be rising. Overall, China is characterized by mixed economic data, so its GDP growth may be slowing if exports continue to sputter.
Coffee Beans: See You Later, Alligator
A crew investigating potholes in a Florida road sent a robotic camera into an underground pipe where it encountered a 5-foot alligator. The city said the alligator wandered off after the camera got stuck on a small indentation about 340 feet into the pipe. Source: UPI. See the full story here.
