U.S. July PPI - Inflationary pressures persist outside corrections in some sectors
Initial claims at 209k from 200k are still low but appear to be normalizing after some very low recent outcomes, which turned out to contradict a weak July non-farm payroll. July PPI looks subdued overall at unchanged and 0.2% ex food and energy, but a 0.4% increase ex food and energy and trade shows that inflationary pressures have not gone away.
Initial claims are at a 4-week high but still below levels seen through May and June. Next week will be the survey week for August’s payroll but initial claims proved a misleading signal in July.
Continued claims cover the week before initial claims and reversed a rise to 1.799m in the preceding week. Here the 4-week average has fallen to its lowest since June 6.
July’s PPI was restrained by a 3.1% fall in energy and a 0.9% fall in food, in each case a second straight decline after respective declines of 6.5% and 0.5% in June. Gasoline prices did end July higher than they started the month so further declines in energy seem unlikely.
Ex food and energy PPI was as expected with a rise of 0.2%. Goods ex food and energy were encouragingly subdued, up by only 0.1% after a 0.2% rise in June. Gains from December through May ranged from 0.4% to 0.8% so the latest two months have shown a loss of momentum, a fading impact from tariffs and reduced impact from Middle East supply issues both likely to be relevant.
Services increased by only 0.1% but with a mixed breakdown. Trade fell by 0.1% and ex food, energy and trade PPI rose by 0.4% , rebounding from a below trend 0.1% in June. Elsewhere in the services detail transportation and warehousing fell by 1.8%, a second straight decline after five straight strong gains. March, April and May were particularly strong, as the Middle East crisis had knock-on effects that are now correcting, though like in energy, the correction may not extend much further. Other services were worryingly firm at 0.6%.
Yr/yr PPI stands at 4.7% both overall and ex food, energy and trade, down from 5.5% and 5.0% respectively in June but still firm. Ex food and energy the yr/yr pace slowed to 4.2% from 4.7%.
Intermediate data reinforces the message of finished data. Goods were softer overall, processed at -0.6% and unprocessed at -1.8%, but with respective gains of 0.1% and 1.6% ex food and energy. Intermediate services were quite firm at 0.5%. There are clearly still some underlying inflationary pressures outside the correction from recent highs in certain Middle East-sensitive components.