Inflation and Retail: Unfinished Business

Thursday, May 11th, 2017

Ahead of today's opening bell, new reads on jobless claims and producer pricing are grabbing headlines. This is in addition to the first wave of big retail earnings reports coming out, as always at the tail-end of earnings season.

The Producer Price Index (PPI), a closely followed report that helps keep tabs on overall inflation, surprised to the upside: +0.5%. The last read was -0.1%, which remains unchanged from its initial release. Month over month we see this number up 0.7%, and year over year +2.5%. These are quite atypically high reads.

Importantly, reports like PPI also including the stripping out of food and energy pricing, as these are often volatile reads that can skew the overall figures in a meaningful way. Yet ex-food and energy, the overall PPI is still +0.4%, and +1.9% year over year without the inclusion of those two factors. The last time we saw PPI numbers this strong was in December of 2014.

This big beat over expectations is certainly something the Federal Reserve will file away in its collective memory banks; while no immediate figures are available, the likelihood of an interest rate rise at the FOMC June meeting has got to be better than it was before this report came out. Also, tomorrow morning we expect to see the other side of the same coin - results from Consumer Price Index (CPI) report, which will demonstrate the relationship between wholesale and retail pricing.

Speaking of retail, Macy's M posted a disastrous quarter prior to today's market open, missing earnings estimates by 11 cents per share to 24 cents, with sales reaching $5.338 billion, lower than the $5.47 billion expected. Comparable-store sales year over year (comps) were pretty abysmal: -4.6% from the -2.7% expected. This all points to traditional big box retail falling faster than initially anticipated.

Macy's, a Zacks Rank #4 (Sell) stock, has fallen more than 11% in pre-market trading following this earnings release. The company was already down 26% year to date, even before it posted its second earnings miss in the past three quarters.

Finally, the U.S. jobs market continues to put up historically strong numbers, posting an Initial Jobless Claims figure from last week of 236K. This is down another 2000 claims from the previous week's unchanged figure. Continuing claims also remained below the psychologically pleasing 2 million threshold at 1.918 million.

Domestic labor is certainly holding its own, and has been doing so for quite some time. This may be a further indicator that tomorrow's CPI number might be hot, as well.

Mark Vickery

Senior Editor

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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