Producer Price Deflationary Trends Cast Doubt On the Recovery

Mish

Producers prices unexpectedly declined in June following a bounce in May.

Deflationary Trends Resume

The BLS Producer Price Report shows deflationary trends resume in June.

Final Demand 

  • Services: The index for final demand services moved down 0.3 percent in June, the largest decrease since falling 0.3 percent in February. The June decline can be attributed to margins for final demand trade services, which dropped 1.8 percent.
  • Goods: The index for final demand goods rose 0.2 percent in June after increasing 1.6 percent in May. Leading the June advance, prices for final demand energy jumped 7.7 percent. 
  • Food:Final demand foods dropped 5.2 percent
  • Less Food and Energy: The index for final demand goods less foods and energy inched up 0.1 percent. 

Economists Miss the Mark

PPI vs Econoday Consensus for June 2020

Real Economy vs the Stock Market

Not only did economists miss the mark badly, results were outside the range of any estimate on three of four categories.

Prices did not rebound as expected.

Demand destruction tops prices except of course for the stock market. That's where the inflation is found. 

Understanding Demand Destruction

  1. There is No Recovery in the Aerospace Industry
  2. Fewer People Pay Their Rent on Time in July
  3. United Warns It May Cut 36,000 Employees
  4. New York City Commercial Property Sales Plunge to 2009 Lows

There will be no recovery without a recovery in jobs. The recent data is grim.

Total Unemployment Claims on the Rise

All Continued Claims in 2020 July 9

For details, please see State Claims Decline But All Unemployment Claims Are on the Rise

Mish

Comments (17)
No. 1-7
Tony Bennett
Tony Bennett

"Demand destruction tops prices"

...

Yes!

Not to mention that credit tightening is just beginning ... delinquencies / defaults just now leaving launch pad ... when fiscal stimulus wanes + moratorium / forbearance ends ... won't be pretty.

Yield curve headed to 0.0% ... murmurings of NIRP will rise like a (sudden) gale.

Tony Bennett
Tony Bennett

Another thing deflationary? Federal Reserve's balance sheet.

Down this week (4th week in a row) $88 billion ... well under $7 trillion.

The "Federal Reserve is gonna buy it all up" crowd at SOME point will start to fidget.

tokidoki
tokidoki

Trump will simply tell you that without him, it would have been worse i.e. it could have been down 15%!!! So he saved 14.7%. I mean what's 0.3 compared to 14.7??

As usual Mish is complaining too much. We are winning and will continue to win!!!!

PecuniaNonOlet
PecuniaNonOlet

I am surprised demand destruction hasnt been faster. Of course I look at things through my own lens. Working from home on a mostly permanent basis means dramatic reductions in Buying things: shoes, business clothes, biz lunches, biz trips, etc. I am converting my wardrobe to mostly comfortable pajamas which i do my work in most of the day. As soon as my car lease ends in a couple of months i wont need car insurance, gasoline, car washes, pay tolls, etc. Who is still buying things?

I have been spending money upgrading my home internet infrastructure to maximize tv streaming and work connectivity. Upgraded my security camera system for the upcoming desperation.

Aside from food, i really dont need to buy much.

MiTurn
MiTurn

Next round of layoffs coming up, with aerospace, oil production, and manufacturing in the dumps.

shamrock
shamrock

Supply destruction is outpacing demand destruction. Factories are closed, new cars will be in short supply this summer, pushing used car prices up. People on unemployment with the extra $30k/year in Bernie bucks are on a spending spree. Inflation this time around.

shamrock
shamrock


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