PPI Rises More Than Etimates on Energy, Job Market Still Healthy

- The Producer Price Index for May rose .9% versus estimates of a .6% gain and a .7% increase in April.

- PPI Ex Food & Energy for May rose .2% versus estimates of a .2% gain and unch. in April.

- Initial Jobless Claims for last week fell to 311K versus estimates of 312K and 311K the prior week.

- Continuing Claims are estimated at 2487K versus estimates of 2503K and 2530K prior.

BOTTOM LINE: Prices paid to US producers rose more than forecast in May, reflecting a fourth consecutive jump in fuel costs that threatens a broader pickup in inflation, Bloomberg reported. The core PPI rose 1.6% year-over-year in May versus a 1.5% gain in April. Energy prices jumped 4.1% in May versus a 3.4% gain in April. However, food prices fell .2% in May, led by the largest decline in vegetable prices in 5 years. Excluding food and energy, intermediate goods prices rose .4% in May versus a .8% gain in April. Passenger car prices fell .2% versus a 1% decline in April, while light truck prices fell .1% versus a .5% decline in April. Computer prices fell 2% versus a 1.8% decline. The Fed said in its Beige Book report yesterday that “District reports generally did not indicate an increase in overall price pressures.” I suspect the PPI is reaching its peak rate of increase for the year this month or next and will show substantial deceleration by year-end.

The number of Americans filing first-time claims for unemployment benefits held at 311,000 for a second week, pointing to a buoyant labor market, Bloomberg said. The four-week average of jobless claims rose to 311,250. Rising wages and job growth continue to support consumer spending. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.