LIVE MARKETS-Thursday data deluge: PPI, retail sales, jobless claims, et al

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THURSDAY DATA DELUGE: PPI, RETAIL SALES, JOBLESS CLAIMS, ET AL

Thursday brought with it a whirlwind of economic data.

Diving right in, the Labor Department's producer price index (PPI), which tracks the prices US companies get for their goods and services at the figurative factory door, came in hotter than expected.

The report showed PPI jumped 1.3% last month, an abrupt acceleration from August and blasting past the 0.5% consensus.

Year-on-year, PPI surged by 6.3%, hotter than the prior month's upwardly revised 5.6% annual growth rate and a full percentage point north of analyst estimates.

Stripping away volatile food and energy prices, PPI jumped on monthly and annual bases by 0.7% and 5.0%, respectively. Both were significantly higher than economist projections.

Under the hood, the energy component jumped 10.8% from August and a whopping 25.4% from September 2025, all of which happened in the wake of the US-Israeli war. Before the onset of that war, year-on-year energy price growth was essentially zero.

Core PPI, which excludes food, energy and trade services, heated up to 0.5% on the month, and to an even 5.0% year-on-year.

"This rising rate environment is a new challenge for markets to face in the second half of the year, while the Iran war (and corresponding spike in energy prices) was the main challenge in the first half of the year," writes Chris Zaccarelli, CIO at Northlight Asset Management.

This is the third take on September price growth — after last Friday's wage data and the CPI report on Wednesday — and it remains the hottest inflation indicator of the bunch (by far), with the core number gliding 3.0 percentage points north of the Fed's average annual 2% target.

Financial markets are pricing in an increasing 72.9% likelihood that the Fed will leave its current target rate unchanged at its October 27-28 FOMC meeting, with a substantial minority — 27.1% — predicting a 25 bp increase, according to CME's FedWatch tool.

Receipts at US retailers USRSL=ECI increased by 0.8% in September, much more robust than the expected 0.3% increase, but a deceleration from August's upwardly revised 1.3% jump.

Drilling down, a 6.4% surge at the gasoline pump reflects rising crude prices amid ramped-up hostilities in the Middle East. Spending at the pump has shot up 28.1% year-on-year. A languid 0.2% increase in autos/parts dampened the headline, as did the measly 0.3% growth at non-store retailers, which include online shopping.

The 1.1% rise in food and drink services, however, indicates consumers can still afford to treat themselves.

Even so, the "control" figure — which excludes autos, gasoline, building supplies and food services, and is most closely correlated with the personal expenditures element of GDP — eked out a nominal 0.1%, falling short of the 0.3% consensus.

"The retail-sales headline overstates the strength of the consumer," writes Chris Osmond, chief investment officer at Fifth Third Wealth Advisors. "A 0.8% increase looks impressive on the surface, but gasoline-station sales jumped 6.4%."

"Strip out autos and gasoline and sales rose only 0.2%, while the control group increased just 0.1%." Osmond adds, "Consumers are still spending, but some of that spending increasingly reflects what things cost rather than how much consumers are buying."

Jumping over to the employment side of Warsh & Co's dual mandate, 199,000 US workers joined the queue outside the unemployment office last week, a 1,000 increase from the previous week and 1,000 short of Street estimates.

Ironing out weekly volatility, the four-week moving average of initial claims continues to drift sideways, near multi-decade lows.

In the wake of Friday's weaker-than-expected jobs report, combined with JOLTS and Challenger layoff data, employers are apparently content to remain in low-hire/low-fire mode, for the time being, in the face of roiling geopolitical and economic uncertainties.

Ongoing jobless claims, which are reported on a one-week lag, inched 0.2% lower to 1.710 million, hitting the consensus bull's-eye.

"Jobless claims remain exceedingly low," says Sara Godfrey, assistant economist at Oxford Economics. "Labor market data, on balance, suggest a stable labor market that can withstand higher rates."

A look at regional factory activity shows Empire State pushed the pedal to the metal this month, while Philly Fed eased up on the accelerator.

The New York Fed's Empire State index USEMPM=ECI bounded 17.9 points to print at 25.5, handily trouncing the 10.25 estimate, while the Philly Fed business index USPFDB=ECI shed 16.9 points to 20.9, weaker than the 28.9 estimate.

Even so, both indexes remain comfortably north of zero, the dividing line between expansion and contraction.

"New York State manufacturing activity rose sharply in October, with the headline index reaching its highest level in nearly five years," says Richard Deitz, economic research advisor at the New York Fed. "Employment continued to grow modestly and the pace of price increases remained elevated."

For its part, the Philly Fed press release said, "The survey’s broad indicators for future activity continued to suggest expectations for growth over the next six months, although those expectations were less widespread this month."

And finally, a relic from a long-ago time called "August" shows business inventories USBINV=ECI increased by 0.4% as expected, a slowdown from July's 0.9% growth.

Private inventories have been a net drag on US GDP for five of the last eight quarters.

(Stephen Culp)

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