US Labour Market Losing Momentum; May Producer Inflation Comes In Tame

  • The number of Americans filing new applications for unemployment benefits held at an eight-month high last week, consistent with easing labour market conditions, while slowing domestic demand helped to restrain producer prices in May.
  • In the absence of economic uncertainty caused by President Donald Trump's aggressive tariffs on imported goods, the softening labour market conditions and benign producer inflation reported by the Labour Department on Thursday would support a move by the Federal Reserve to resume its interest rate cuts soon. The data was released a day after the Labour Department reported a moderate rise in consumer prices in May.
  • A report from the Labour Department's Bureau of Labour Statistics showed the producer price index for final demand rose 0.1% in May after a revised 0.2% decline in April. Economists had forecast the PPI would rise 0.2% after a previously reported 0.5% drop in April. In the 12 months through May, the PPI advanced 2.6% after rising 2.5% in April.
  • "There are some disinflationary forces, including a softening labor market," said Ryan Sweet, chief U.S. economist at Oxford Economics. "But the Fed needs to carefully monitor whether businesses opt to lay off workers to cut costs because they're eating more of the tariffs than anticipated.
  • That said, despite the tamer inflation readings, economists expected inflation pressures to start building up from June through the second half of the year as businesses pass on import duties to consumers. Surveys, including from the U.S. central bank, have suggested higher prices are coming.
  • The Fed is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of its two-day policy meeting next Wednesday. "But it won't be the tariffs in place now that prevent the Fed from cutting rates next week," said Chris Low, chief economist at FHN Financial. "It is the chance trade talks might collapse and tariffs might jump in coming months, causing a supply shock that has the Fed sidelined.

(Source: Reuters)