Jobless claims and producer inflation show mixed results

REAL ECONOMY BLOG | May 11, 2023

Authored by RSM US LLP

Initial jobless claims rose by 9.1% for the week ending May 6, to 264,000, the most since 2021, the Labor Department reported on Thursday. The rise came as the Labor Department also reported the producer prices bounced back in April, in part because of favorable comparisons to surging prices of a year ago.

The sharp jump in new claims broke the short-term trend of claims moving sideways since March, bringing new filings for jobless benefits one step closer to our threshold of 350,000 when the labor market shows distress.

The unexpected change was also driven by another surge in new claims from Massachusetts, which posted an increase of more than 6,000 on a non-seasonally adjusted basis to about 35,000 last week. Four weeks ago, Massachusetts’ initial claims stood at 15,900.

If our prediction for a recession in the second half of the year turns out to be true, we should expect new claims to rise further and faster in the next three to four months, while at the same time job gains slow.

Continuing claims also inched up to 1.813 million for the week ending April 29, continuing its upward trend since last September, when it reached the bottom of 1.3 million.

Producer inflation

In a separate report from the Labor Department on Thursday, prices for final demand received by producers bounced back in April, rising by 0.2% on the month after falling by a sharp 0.4% in March. The report is another sign for the Federal Reserve that the path to get inflation under control will continue to be bumpy.

Despite April’s rebound, the year-over-year producer inflation rate fell to 2.3% from 2.7% because of base effects, or comparisons to last’s year spike in prices during the start of the Ukraine war.

But the core inflation figure, which excludes food and energy, stayed sticky, easing to 3.2% from 3.4% on a year-ago basis. Monthly core inflation rose by 0.2%.

Besides the base effects, the sticky core producer inflation rate that is hovering in the 3% to 4% range is aligned with our forecast that the overall underlying inflation rate should remain above 3% by year’s end, keeping the Fed off rate cut consideration this year.

Beyond the top-line number, trade services—a proxy for wholesale and retail margins—rebounded by 0.5% on the month after dropping by 0.4% in March.

Still, as the economy continues to move toward the end of the business cycle, margins have been one of the most vulnerable components. Only about a year ago, trade services rose by at least 1% for multiple months, once even reaching 2%.