Initial jobless claims jumped to 242,000 for the week ending June 8 from 229,000 the week before, the Labor Department reported on Thursday.
The latest figure was the highest level in almost a year, nearing the threshold of 250,000 that in our view signals conditions for a possible recession.
It is too soon to sound the alarm after one week of data, especially when California accounted for about 10,000 of the increase, likely because of seasonal noise and the state’s increase in the minimum wage.
But new claims have been on an upward trend since January. More important, initial claims have been above the pre-pandemic level for the past three weeks, signaling a much softer month of job gains in June.
Coupled with another downside surprise from producer inflation, we should expect a higher chance of a rate cut in September, as the labor market cools and inflation shows more encouraging signs.
Producer prices
The producer price index fell to negative territory for the second time in three months, down 0.2% in May. Core inflation that excludes food and energy was at 0% on a monthly basis. That brought the year-ago inflation numbers to 2.2% and 2.3% respectively.
What is important about the producer price index inflation is that it does not include housing, which has been one of the stickiest parts in other inflation reports.
If it were up to us, we would move to lower interest rates even earlier, in July, with housing disinflation set to show up in the consumer price index and personal consumption expenditures index.
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In addition, May producer inflation showed prices falling in all stages, signaling much softer price pressure in the pipeline.
But with a heavily data-dependent Fed, one more month of good overall data on inflation might not be enough to move the needle in July.
