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Goldilocks Market, Continued: CPI, Jobless Claims


Thursday, May 10, 2018

Two key economic headlines are out this morning, both of which depict an historically amiable jobs and low-inflation environment: Initial Jobless Claims again came in at an extremely low 211K (unchanged from the previous week), and the Consumer Price Index (CPI) hit the tape only lukewarm at best at +0.2% headline, +0.1% core. The quick takeaway is that even more people are currently employed, and they still aren’t paid much more.

For the past couple years — subtracting an outlier here or there — we have been seeing weekly jobless claims in a very healthy range of 225-250K. Before that, the medium-term range had been between 250-275K, and it has been close to a decade since we’ve seen routine weekly jobless claims above 300K. Anything beneath this points to a strong labor market. Backing this up is today’s Continuing Claims figure, which at 1.79 million is also way down from recent norms, and many months since the last time we saw this number pop above 2 million.

Two weeks in a row at 211K is very remarkable indeed, especially without being accompanied by strong wage growth pressures. Yet with a PPI headline at 0.1% and CPI at 0.2%, what these numbers tell us is that inflation creep is a long way from making a meaningful impact on the current economy. Real average weekly earnings were up 0.4% for the month of April, but this is down from the 0.9% in March. Hourly earnings growth was just 0.2% year over year, down from the 0.3% in the last read.

Year over year CPI is +2.5% (+2.1% core), compared with yesterday’s PPI total of 2.3% year over year. These again suggest tepid growth in inflation indicators, meaning gradual increases in costs of products, prices consumers are willing to pay and employment wage growth are not contributing to any indication the Federal Reserve will need to be more aggressive in raising interest rates. (Currently, the Fed is expected to raise another quarter-point at its meeting in June; the committee has already wrapped its May meeting.)

Pulling back our scope a moment, this relative stagnation in wage growth speaks of a modern phenomenon we have not seen in previous low-unemployment cycles: there are simply not enough matches between job openings and worker skillsets to drive up the labor sellers’ market, despite a very tight jobs environment. In previous decades, the increase in wages — stemming from competition for available prospective employees — would have already been apparent, and we may have already seen the Fed jump into action considering we are still in an historically low range on inflation rates. But labor market constraints are throwing a wet blanket on this scenario, and analysts keep pushing out their projections for inflation, interest rates and economic growth in general.

Pre-markets are in the green again this morning, continuing a most agreeable week for investors, for the most part. Tech companies in particular have seen a surge in value this week, and A.I. play Nvidia NVDA reports results after today’s closing bell. For insights ahead of the earnings report, check out this report from Zacks Senior Strategist Kevin Cook: Google Ramps Assault on NVDA A.I. Throne

Mark Vickery
Senior Editor

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