Instant view: Jobless claims, producer prices, trade

NEW YORK (BestGrowthStock) – The number of people filing new claims for unemployment insurance rose to a higher-than-expected 462,000 in the latest week, while rising food and energy prices pushed inflation at the wholesale level up twice as fast as expected last month.

KEY POINTS: * First-time jobless claims rose 13,000 in the week ended October 9 from the prior week’s upwardly revised 449,000 seasonally adjusted claims. * The four-week average of first-time jobless benefits, which economists prefer because it smoothes out weekly fluctuations, rose 2,250 to 459,000. * Economists polled by Reuters had expected about initial 445,000 claims in the latest week. * The overall producer price index rose 0.4 percent in September and the core index, which excludes volatile food and energy prices, rose 0.1 percent in the month. * Economists polled by Reuters had expected overall prices to rise just 0.2 percent and the core producer price index to rise 0.1 percent in September. * Record imports from China helped widened the U.S. trade gap more than expected in August, suggesting countries were stuck in old patterns of trade despite pledges to put global growth on a more sustainable path. * The monthly trade gap jumped 8.8 percent to $46.4 billion, compared to a consensus estimate of $44.0 billion from Wall Street analysts surveyed before the report. The Commerce Department revised its estimate of the July trade gap down slightly to $42.6 billion.

COMMENTS:

PAUL DALES, U.S. ECONOMIST, CAPITAL ECONOMICS, TORONTO:

“The widening in the U.S. international trade deficit in August, and in particular the jump in the bilateral trade with China to a record high, will fuel growing fears of a currency war.

“The rise in the seasonally-unadjusted bilateral trade deficit with China from $25.9 billion to a new record high of $28.0 billion will only irk Congress further. Even after applying our own seasonal adjustment, August’s deficit of $25.5 billion is the second highest on record even though America’s economy is still badly underperforming. Calls for action against China are only likely to get louder.

“Most of the 0.4 percent increase in producer prices in September was due to a 1.2 percent jump in food prices, suggesting that the surge in agricultural commodity prices is filtering along the inflation pipeline. Core prices (excluding food and energy) increased by just 0.1 percent, however, highlighting that underlying inflation pressure remains benign. These data will not diminish the Fed’s deflation fears.”

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK INTERNATIONAL TRADE:

“It doesn’t look that bad to me. That’s primarily due to a rise in petroleum. That reversed the prior month’s drop in imports. If Boeing aircraft orders didn’t drop, the deficit wouldn’t have widened.

U.S. consumers continue to buy an awful lot of imported goods, and that’s why we are seeing the widening of the trade deficit since the depth of the recession. It is also partly due to restocking of inventory.”

PPI: “I can’t say it’s a trend. There is clearly stronger demand for food and agricultural goods in emerging markets than prior recoveries. This will likely continue.

The important thing is that we are seeing more pressure on the PPI than CPI, which tells you that companies are facing cost increases but because of weak demand, they are not able to pass them on to customers.

Rising costs depict growth in the global economy, but there is this inability to pass on the costs to customers. Under this scenario, this could put U.S. companies at a competitive disadvantage in the global arena.”

JOBLESS CLAIMS: “In the context of the last few weeks, claims are stable in the range of 450,000 to 470,000. Job growth is still weak and layoffs will continue.”

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

“The PPI rise was bigger than the market looked for due to a rise in energy (gasoline) prices. There are some worries related to food inflation. There are some pockets of big increases here and there. The core intermediate goods number rose a modest 0.2 percent. Pipeline inflation has slowed down a lot and the Federal Reserve would be delighted if these numbers started to pick up. The Fed wants an increase in inflation from roughly one percent to above two percent, but without stirring a meaningful rise in inflationary expectations by investors and households.

“The trade balance backed up more than people expected so trade is another drag on third-quarter growth, but the drag will probably be less than one percentage point compared to a three percentage point drag in the second quarter. I still think the right number for third-quarter GDP is about 2 percent at the moment. And nobody is looking for a major acceleration of growth over the next 12 months.

“Jobless claims have been quite steady since early September. The latest figures suggest a small positive number in payrolls next month. What is particularly troubling is that the claims figures did not seem to pick up the big decline in local government employment, mainly teacher layoffs. The new worry among investors is an old worry: that even though private sector hiring is continuing, the effect of that hiring may get swamped by layoffs among state and local government workers. Even though Wall Street doesn’t want to admit this, teachers buy things, too, and their layoffs are matter just as much as far as the economy is concerned.

“It’s very easy to stop the layoffs of state and local government workers. The federal government can give money to states and localities. Transferring money from the federal government to state and local government is a favorite pastime

of Republican presidents and Republican-led Congresses so the expected Republican majority in at least one house of Congress next year – if it’s traditional Republicans – would be philosophically comfortable with increasing aid to state and local governments.”

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW YORK:

“Initial Jobless Claims totaled 462,000, 17,000 above expectations and a disappointing reading after last week’s fall… A Labor Department official though did say that claims typically rise in the beginning of each quarter and 5 states had to estimate their claims data because of the Columbus Day holiday. Either way, looking at the 4 week average to smooth out the distractions has it at a still elevated 459,000, a 3 week high. A positive was the 112,000 person drop in Continuing Claims and a 340,000 net fall in Extended Benefits but only if the decline was due to benefit recipients finding new jobs as opposed to reaching the expiration of them. Based on jobs data recently seen, its unfortunately more of the latter than the former.”

JASON PRIDE, DIRECTOR OF INVESTMENT STRATEGY, GLENMEDE INVESTMENT AND WEALTH MANAGEMENT, PHILADELPHIA:

“Jobless claims are still basically in the range of 450,000 to 480,000, and obviously we’d love to see it come in consistently under 450,000. But it is a weekly number and subject to a lot of error. On a four-month rolling basis, which eliminates a lot of the error, claims have continued to come down. So this isn’t a great surprise, but it isn’t anything horrible.

“That PPI came ahead of consensus takes a little bit out of the idea that we have dramatic concerns about deflation. It doesn’t completely eliminate the statement that inflation is running below normal levels.

“These numbers don’t fall out of the range of expectations, so they don’t move the needle too much.”

MARKET REACTION: STOCKS: U.S. stock index futures trimmed their gains after the jobless claims and PPI data. BONDS: U.S. Treasury debt prices were little changed after the data. DOLLAR: U.S. dollar extended its losses versus the euro.

Instant view: Jobless claims, producer prices, trade