July PPI is Below Expectations - 5 Things to Know - #2 - August 16th, 2024

[Music] exactly thing number two Gary we're talking June PPI came in high uh July PPI lighter than expected conclusion rate Cuts coming sooner rather than later once again thing number two Gary July ppi is below expectations all right so the the PPI stands for producer price index and the reason reason that matters the reason it's important as a measure of inflation is the producers see these price increases first if you're a manufacturer and you're a provider of services and your costs go up you see that in the PPI first the producer price index and then later a couple few months later we see that in the CPI the Consumer Price Index which is what we all experience as inflation or the pce which is the personal consumption expenditures index which measures how much more people are spending ing so you know this is the precursor and last month um the we we got a surprise the PPI came in light uh it was only up 0.1% for the month the core PPI was flat versus the prior month expectations were for 2% for both the annual PPI was a 2.2% number which is that's respectable you know ideal would be zero but 2.2% is well within reason the core number was a bit higher uh which came in at hang on here yeah 2.4% which was well below last month's 3% so we're really seeing a lot of disinflation here again the numbers are too high but definitely getting better uh overall Gary positive report for those looking to see lower inflation lower fed funds rate uh one area of concern though that you mentioned was the increase in pricing for final demand Goods uh tell us more about that what is it what does it mean the reason that matters is over the last couple so actually you know what Rob let's let's go back a couple of years to the covid related lockdowns so everybody's you know please please no Gary I sorry sorry everyone right Trigg trigger warning don't we need we need a trigger warning yeah can we get a flash right Andrew flash up a trigger warning for everybody all right so what happened was everybody's you know Sheltering at home uh you know in there two weeks to stop the spread or slow the curve or you know whatever language the first two weeks were very fun I will say that I had a great time for those first couple weeks of course okay so when that happens Ser demand for services plummets nobody's going you know out to eat or you know to concerts or anything like that uh you know nobody's getting on planes and and staying in a hotel um but people built out home offices they built out theaters they built out Home Gyms right they're like okay if we're going to be locked in for a while we might as well make our home nice and you know they had the money to spend so what that did was that spiked the price of goods then the economy opens up and everybody starts going out and we saw massive Services inflation followed by you know there was all this pent up Goods spending and now there was less demand for goods and so over the last couple of years we've seen very little inflation in goods and the price of some Goods has actually gone down um and we've seen High Services prices and this PPI report actually reversed that we saw a monthly increase in pricing for final demand Goods of 6% that is enormous that annualized to more than 7% and that's that's pretty unusual uh and that was a huge reversal it's also one that we warned about in last week's five things we talked about you know higher prices for automobiles and said hey if we start to see higher Goods prices the FED is really going to have a problem because Services inflation has remained very sticky in that 5 to six% range um the interesting thing here is most of that huge increase in Goods pricing was offset by a decrease in pricing for previously sticky final demand services so we saw a bit of a reversal here um I don't know that that's going to continue but it's it's potentially concerning for the FED because they've had a hard time getting Services pricing down if we get higher Goods pricing they're going to be cutting it right into you know huge huge amounts of inflation um and so you know the only other thing that I would add and this is this is relevant for um both the PPI and CPI again the conclusion here is I think we're going to see a rate cut in September I think 25 basis points not 50 but one thing that we're expecting to see is DKI has been talking for the last couple of years about how unreliable the employment numbers have been and so you know people say hey we've got this really strong economy we have you know great employment numbers and we've constantly been saying no the employment numbers as announced are always great but then a month or two later they're always revised down we're seeing rumors that they're due to revise the jobs number for the past year down by one million jobs wiping out all these gains so literally every time in the past year you saw headlines saying the jobs number is good they beat expectations we had growth that is all about to be wiped away in one massive you know restructuring um and so you know look that data has been horrible it's been inaccurate and you know I think what we're looking at here is now we've got a disinflation in the PPI in a huge way some decent disinflation on the CPI and we're about to see a massive revision of the jobs numbers and you know I'm going to let the political analysts out there figure out is this good or bad for the incumbents or the upstarts for the election you know on one hand if you're the Democratic party and you want to stay in office you want to say you know we've got a we've got the rate Cuts coming and we'll have a stronger economy and so this data helps the Democrats who will want a rate cut um but the other side of it is if a million jobs just got wiped out all of a sudden the economic data isn't going to be looking great and we could be getting you know some sort of potential recession warnings right before the election that's not great for them so you know it's kind of one of these on one hand on the other hand arguments if you have a view on whether this data is good or bad for team red or team blue put it in the comments I'm interested in your opinion I'm not sure who this is helping right now would love the discourse and as Gary's always say says if you disagree with him just tell him why that's the only stipulation we have yeah and by the way it's cool if if you're listening to this and your team red your team blue that's fine you're entitled to your point of view you're entitled to your political opinions um but I'm interested in your view do you think this data you know helps or hurts you know the guys you're rooting for um you know it's I'm not on the other side of this I'm just interested in what you guys think yeah million jobs is a is a big number in terms of rev vision