Wholesale Inflation Data: More Good News For The Economy?

After declining for four months in succession, US producer prices soared in March. The Labor Department report, issued today, revealed that the producer price index (PPI) for final demand saw a 0.2% increase last month. In comparison, the same metric declined 0.5% in February, 0.8% in January, and a seasonally adjusted 0.8% in the past 12 months.

Weak job growth statistics for March prompted concerns of the economic situation worsening in the country. The labor market added as little as 126,000 jobs in March, less than half the trailing 12-month average of 269,000 jobs. Harsh weather, stronger dollar, and a decline in drilling activity have all taken toll on the economic activity.

That said, the jobless claims data, ousted by the Labor Department last week, helped negate the concerns. Claims for the week ended April 4 totaled 281,000, lower than Bloomberg’s consensus estimate of 283,000. The report also revealed that the four-week moving average for jobless claims plummeted to a 15-year low of 282,500.

The positivity reflected in last week’s claims data was taken a step further today, as the wholesale inflation rose after a dismal weak winter spending. According to the report, “more than half of the increase in final demand prices can be attributed to a 0.3% advance in the index for final demand goods.” The index for final demand services soared 0.1% in the month.

Another report issued today, revealed that retail sales also grew in March, after declining for each of the past four months. The Commerce Department report says that US retail and food services sales totaled $441 billion in March, 0.9% higher than in the previous month, and 1.5% more than March 2014 sales. In the first three months this year, total sales have rallied 2.2% year-over-year (YoY). That said, the March sales growth came below the economists’ expectation of 1.1%.

Michael Feroli, chief economist at JPMorgan, told clients that: “This outcome confounds all the standard consumer-spending models. Job gains, wealth gains, low gas prices and very high consumer sentiment would all point to solid consumer spending increases.”

The Federal Reserve will be keenly observing all the economic data on offer. The central bank, which has kept interest rates low since the 2008 stimulus, has an inflation target of 2%. The Fed was previously expected to increase interest rates in mid-2015, but after the economic slowdown in the first quarter of this year, the rate hike might well have been pushed backed to the third/fourth quarter of CY15, or maybe even the next year.

The Dow Jones Industrial Average is up 0.4% today at above 18,000. The S&P 500 Index is 0.15% in the green, approaching the 2,100 mark.

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