Initial claims for jobless benefits matched their recent peak last week, adding to evidence that the labor market has turned cold and bolstering the case for Federal Reserve rate cuts. The S&P 500 is modestly lower, with Boeing and GE Aerospace falling after a passenger jet crashed in India.
Markets see no chance of a rate cut at next week's Fed meeting, but rising jobless claims and tame producer price index data nudged up odds of a rate cut at the July meeting. The bar to a rate cut is high though, with Trump tariffs expected to put upward pressure on inflation in coming months and fiscal stimulus potentially on the way from GOP tax cuts.
Jobless Claims Data
Initial claims for unemployment benefits held at 248,000 in the week through June 7, as the prior week's claims were revised up from 247,000, the Labor Department reported. Economists were expecting claims to dip to 243,000, according to Econoday.
The four-week average of initial claims increased to 240,250 from a revised 235,250. That's the highest level since August 2023.
Continuing claims for unemployment benefits grew 54,000 to 1.956 million, the highest since November 2021.
PPI
Producer prices were tamer than expected, though revisions to the prior month's data offset the surprise. The PPI for final demand rose 0.1%, below 0.2% forecasts. The core PPI, excluding food and energy, also rose 0.1%, undercutting 0.3% forecasts. However, the core PPI for April was revised to -0.2% from -0.4%.
Still, components of the PPI that feed into the Fed's primary inflation gauge, the core PCE price index, seemed to raise the prospects of a soothing reading for May. A broad measure of health care services inflation eased to 2.8% from 3.1% in April.
Airline passenger services prices fell 1.1% on the month.
Economists had anticipated a rebound in portfolio management services prices, given the 6.15% rebound for the S&P 500 in May, but they actually dipped 1%, according to PPI data.
Muddled Labor Market Picture
Last Friday's May jobs report showed employers added 139,000 workers to payrolls last month, deflating chances an inflation-wary Fed will resume rate cuts this summer. But below the headline, there were indications that the labor market may be verging on a slump.
The prior two months' job gains were revised down by a combined 95,000. Plus, the separate household survey showed the ranks of the employed plunging by 696,000. The unemployment rate held steady only because the number of labor force participants, those working or looking for work, dived by 625,000.
Fed Rate-Cut Odds
After today's jobless claims and producer price index data, markets are pricing in 29% odds of a Fed rate cut at the July 30 meeting, up from 23% before the data. Odds of a rate cut by the Sept. 17 Fed meeting edged up to 79% from 76%.
For the full year, markets now see 79% odds of at least 50 basis points in rate cuts, with 40% odds there could be a third quarter-point cut.
S&P 500
S&P 500 futures are off 0.25% in early stock market action, after dipping 0.3% on Wednesday as terms of the U.S.-China trade framework came to light. The S&P 500 finished 2% below its all-time closing high on Feb. 19.
Dow Jones and S&P 500 giant Boeing stock fell 4.5% on the Air India 787 Dreamliner crash.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
