Daily Newsletter 5/15/25
This morning, we received three important data releases: the Producer Price Index (PPI), initial jobless claims and retail sales for April. These updates are expected to provide greater clarity for the U.S. markets. Today, we will observe how the markets respond and digest this new information.
The U.S. Bureau of Labor Statistics reported today that the Producer Price Index1 for final demand decreased by 0.5 percent in April, seasonally adjusted.
The index for final demand increased by 2.4 percent over the 12-month period ending in April.
Prices for final demand excluding foods, energy, and trade services slipped by 0.1 percent in April, marking the first decrease since a 0.8 percent drop in April 2020.
PPI (MoM) -0.5% PPI (YoY) 2.4%
Core PPI (MoM) -0.4% Core PPI (YoY) 3.1%
A MoM decline in PPI typically reflects reduced inflationary pressures at the producer level, which can have downstream effects on consumer prices and monetary policy, and may signal changing demand or supply conditions in the economy.A lower PPI indicates that wholesale inflation is cooling, which may eventually lead to slower consumer price increases if producers pass on these lower costs to consumers.
This decline in MoM PPI and MoM Core PPI may indicate various underlying economic factors.
Sometimes, a PPI drop is driven by sharp decreases in specific categories, such as energy or food. For example, a notable drop in gas prices or agricultural products can pull down the overall index.
The decline in PPI suggests that wholesale inflation pressures eased in April, with the drop attributed largely to lower prices in certain sectors, particularly services.
This decrease is likely to significantly shape the Federal Reserve’s view of inflation trends and may influence its future interest rate decisions
If the decline in PPI leads to lower consumer prices and results in a drop in CPI, inflation could move closer to the Federal Reserve’s target rate. This would reduce pressure on the Fed and potentially allow for interest rate cuts without the economy needing to enter a recession. However, if this decline proves to be temporary and the effects of tariffs have not yet materialized, the baseline outlook is unlikely to change.
For the week ending May 10, 2025, U.S. initial jobless claims held steady at 229,000, according to the U.S. Department of Labor. This figure was unchanged from the previous week and slightly above the consensus forecast of 228,000, indicating continued stability in the labor market.
U.S. retail sales in April 2025 rose by just 0.1% from the previous month, reflecting a significant slowdown after a strong 1.7% increase in March. The modest gain was largely attributed to consumers scaling back purchases following a surge in pre-tariff buying, especially for vehicles, ahead of the implementation of new tariffs on imports.
Excluding automobiles, gasoline, building materials, and food services-categories that make up the core retail sales figure most closely watched for GDP calculations-sales actually declined by 0.2% in April after a 0.5% gain in March.
While consumer spending remains supported by a resilient labor market and wage growth, economic uncertainty and higher tariffs have prompted households to be more cautious, particularly with discretionary spending.
The data this morning indicate that inflationary pressures are easing at the wholesale level, but consumer spending is losing momentum.
This combination could give the Federal Reserve more flexibility regarding interest rate decisions if the trend persists. However, the slowdown in retail sales and the impact of tariffs on both prices and growth highlight ongoing risks to the economic outlook.
Markets will likely interpret these signals as evidence of a cooling economy, with attention turning to how persistent these trends will be in the coming months.
However, as we all know, market reactions to new information can be quite complex. In our opinion, the best way to gauge the market’s near-term reaction is for investors to monitor developments closely before making any decisions. In other words, we strongly advise exercising caution.
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