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HEATWAVE: PPI HITS 3-1/2 YEAR HIGH, JOBLESS CLAIMS HIGHEST SINCE FEBRUARY

On Thursday, the Labor Department gave investors - not to mention the Federal Reserve - some food for thought from both sides of the central bank's mandate: inflation and employment.

May producer prices (PPI) USPPFD=ECI, which track the prices U.S. companies get for their goods and services at the figurative factory door, came in blistering hot.

The report showed PPI jumped by 1.1% last month, barging past the 0.7% consensus, repeating April's upwardly revised reading.

Year-over-year, the producer prices surged by 6.5%, an acceleration from the previous month's 5.7% annual rate and a tad warmer than the 6.4% analysts expected.

Stripping away volatile food and energy prices, PPI jumped on monthly and annual bases by 0.4% and 4.9%, respectively. Both were cooler than economist projections.

Core PPI, which excludes food, energy and trade services, accelerated to 0.8% on the month, from April's 0.5% rate, and accelerated by 0.7 percentage points to land at 5.1% year-on-year. That's the highest year-on-year core reading since October 2022.

"While prices have come down from their peak, businesses are still facing higher costs for labor, transportation and energy, and some of those costs will eventually find their way to consumers," writes Steve Rick, chief economist at TruStage.

"Higher energy prices tied to the conflict in Iran are also creating additional inflation risks," Rick adds. "Energy costs have a way of working themselves through the economy, affecting everything from transportation and manufacturing to the price consumers pay at the store."

As the third major take on May price growth, PPI remains the hottest inflation indicator of the bunch (by far), hovering well above the Fed's average annual 2% target.

The report effectively snuffs out any lingering hopes that the central bank will cut its key Fed funds target rate any time soon. In fact, the likelihood of a rate hike by the end of the year is growing on nearly a daily basis.

Following the report, financial markets were pricing in a 43.1% probability of a rate hike as soon as December. Those odds have more than doubled over the last month.

Jumping over to the employment side, 229,000 U.S. workers joined the queue outside the unemployment office last week USJOB=ECI, the longest that line's been since February.

It also marks a 1.8% weekly increase and lands 10,000 north of consensus.

Ironing out weekly volatility, the four-week moving average of initial claims now has a clear, albeit rangebound, upward bias.

But this follows in the wake of Friday's robust jobs report. What happened to the low-hire/low-fire scenario suggested by other recent labor market data, particularly the most recent JOLTS release?

Are employers stuck in wait-and-see mode in the face of geopolitical and economic uncertainties? And with inflation once again on the rise, where does that leave our friends at the Fed?

"The main issue for the labor market for some time has been very subdued hiring, rather than widespread firings," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "The most recent few payroll reports have been surprisingly strong, but other indicators of labor demand ... suggest hiring remains very weak."

"We expect that to mean more subdued payrolls prints over the next few months and a gradual renewed climb in the unemployment rate."

Ongoing jobless claims USJOBN=ECI, which are reported on a one-week lag, grew by 1.4% to 1.795 million, 15,000 more than analysts expected.

How does that jibe with recent consumer survey data, which suggest laid-off workers are finding it difficult to find work?

As Pantheon's Allen reminds us, "Claims cover only about a quarter of those unemployed, excluding the long-term unemployed, plus new entrants and re-entrants to the labor market."

(Stephen Culp)

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EARLIER ON LIVE MARKETS:

CHIP COMEBACK: TECH LEADS MARKET REBOUND AFTER ROUT CLICK HERE

TECH BARGAIN HUNTING LIFTS FUTURES DESPITE MIXED PPI REPORT CLICK HERE

EUROPE AT HALF-TIME: COUNTDOWN TO ECB'S 'INSURANCE HIKE' CLICK HERE

A RECORD WEEK FOR VOLATILITY IN SEOUL CLICK HERE

FRIDAY'S TECH SELLOFF VS TUESDAY'S CLICK HERE

POSITIVE START CLICK HERE

EUROPE BEFORE THE BELL: NOT YOUR EVERYDAY CEASEFIRE CLICK HERE

TECH AND WAR JITTERS SAP CONFIDENCE CLICK HERE