Producer prices drop 0.6% in February; initial jobless claims decline to 211,000

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The producer price index fell a seasonally adjusted 0.6% in February after rising 0.5% in January, the Labor Department reported on Thursday. It was the biggest decline in over five years.

Economists surveyed by IFR Markets had expected PPI to have risen by 0.1% last month.

On an unadjusted basis, the index was up 1.3% in the 12 months ended in February.

In February, 60% of the decline in the final demand index can be traced to a 0.9% decrease in prices for final demand goods.

The index for final demand services moved down 0.3%. Economists surveyed by IFR Markets had expected this core PPI rate to have risen by 0.2% last month.

Prices for final demand less foods, energy, and trade services inched down 0.1% in February, the first decline since falling 0.1% in June 2019.

For the 12 months ended in February, the index less foods, energy, and trade services rose 1.4%.

The index for final demand goods fell 0.9% in February, the largest decline since dropping 1.1% in September 2015.

“Over 60% of the broad-based February decrease can be traced to prices for final demand energy, which dropped 3.6%,” the Labor department said in a release. “The indexes for final demand foods and for final demand goods less foods and energy declined 1.6% and 0.1%, respectively.”

Almost one-third of the February decrease in the index for final demand goods was attributable to a 6.5% drop in gasoline prices, Labor said.

The index for final demand services fell 0.3% in February, the largest decline since moving down 0.3% in September 2019.

Steve Skancke, chief economic advisor at Keel Point
Steve Skancke, chief economic advisor at Keel Point.

“The DJIA ended its Bull Market run [on Wednesday], propelled by Boeing’s dramatic 18% sell-off,” said Steve Skancke, chief economic advisor at Keel Point. “The S&P and NASDAQ now are also down more than 20% from last month’s record highs reflecting investor fears that coronavirus spread and U.S. containment will contribute to tipping the global economies into recession.”

He noted the importance consumers have to the U.S. economy.

“U.S. consumer spending has been the principal driver of U.S. economic growth over the past 128 months,” Skancke said. “Concerns that consumer confidence, incomes, and spending will diminish sharply as a result of an illness, care, workplace, and school closing disruptions continue to grow and aren’t abated by confusion around recently announced government measures and an apparent impasse in White House/Congressional action to provide support to the U.S. public.”

He noted that worry was growing among investors.

“Likewise, uncertainty around corporate earnings is at recent, record highs. The impact on corporate revenues from a fall-off in sales from new virus outbreaks and increasing limitations on business operations and consumer spending propels investor fear.”

Jobless claims fall in latest week
Initial jobless claims fell to 211,000 in the week ended March 7, a drop of 4,000 from the previous week's revised level of 215,000, originally reported as 216,000.

Economists polled by IFR Markets had expected claims to have totaled 215,000 for the week.

The four-week moving average was 214,000, a gain of 1,250 from the previous week's revised average of 212,750, originally reported as 213,000 to 212,750.

The advance seasonally adjusted insured unemployment rate was 1.2% for the week ending Feb. 29, unchanged from the previous week's unrevised rate.

The advance number for seasonally adjusted insured unemployment in the week ending Feb. 29 was 1,722,000, a decline of 11,000 from the previous week's revised level of 1,733,000, originally reported as 1,729,000.

The four-week moving average was 1,727,500, an increase of 5,250 from the previous week's revised average of 1,722,250, originally reported as 1,721,250.

“Government missteps and inability to contain the rapidly spreading coronavirus is causing global commerce to rapidly grind to a halt,” said Scott Anderson, chief economist at Bank of the West. “U.S. stocks are down sharply again this morning on the lack of details in the Trump Administration’s stimulus plan to combat the potential economic slowdown from the coronavirus. The Dow and the S&P 500 are down 8.57% and 7.80% respectively, while the NASDAQ is down 7.60%. Losses in the S&P 500 are led by energy, financial, and material stocks.”

He noted the volatility in bond yields on Wednesday.

“Treasury yields are plummeting this morning as investors continue to seek safe havens. The 10-Year Treasury yield is currently at 0.771% — down 9.9 basis points from Wednesday’s close. The 2-10 Treasury spread is 31.1 basis points — down 4.5 basis points from Wednesday’s close. The futures market is pricing in 75 basis points in interest rate cuts from the Fed at the March FOMC meeting next week with a 66% probability of 100 basis points in cuts.”

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