Producer Price Index (PPI)
The December Producer Price Index came in hotter than expected, with headline prices rising 0.5% versus estimates of 0.2%. On a year-over-year basis, PPI held at 3%, even though markets were looking for a pullback to 2.7%.
Core PPI, which excludes food and energy, also surprised to the upside, rising 0.7% compared to expectations of just 0.2%. This pushed the annual core reading up to 3.3% from an upwardly revised 3.1%, while the market had been anticipating a decline toward 2.9%.
Digging into the details, goods prices were flat despite higher precious metals prices at the time of the report (which have since corrected). The increase was driven almost entirely by services—specifically machinery and equipment wholesaling margins.
Because the inflationary pressure was narrow and isolated to one area, the bond market largely shrugged it off. Bonds were already under pressure earlier in the day following Warsh’s announcement, and PPI did little to change that narrative.
Apartment List National Rent Report
More encouraging news on the inflation front continues to come from housing. Apartment List reported that new rents fell another 0.2% in January. On a year-over-year basis, rents are now down 1.4%, a larger decline than the prior reading of 1.3%.
Time-to-lease has climbed to the highest level since Apartment List began tracking the data, pushing vacancy rates to 7.3%—also a record high since tracking began in 2017.
This matters because shelter makes up a significant portion of inflation reports. While CPI and PCE are still showing shelter inflation around 3.3%, real-time data is running closer to—or even below—1%. This disconnect suggests shelter inflation will continue to trend lower in future reports. Measures like Truflation are already reflecting this reality, which is why their inflation readings remain below 2%, even after accounting for tariffs.
Productivity & Unit Labor Costs
Productivity remains a bright spot. Q3 productivity rose 4.9%, matching both expectations and the prior quarter. That follows a strong Q2 reading of 4.1%, highlighting sustained efficiency gains across the economy.
As productivity improves, unit labor costs continue to fall. Q3 unit labor costs declined 1.9%, in line with estimates and following an even larger 2.9% drop in Q2. Lower labor costs are inherently deflationary and help offset inflation pressures elsewhere.
Jobless Claims
Initial jobless claims fell by 1,000 to 209,000, after the prior week was revised higher by 10,000. While this was slightly above expectations of 205,000, it remains historically low.
That said, we don’t believe this data fully captures what’s happening beneath the surface. Layoff announcements remain elevated, and the growth of the gig economy can mask labor stress. Many workers who lose full-time jobs don’t show up cleanly in the data if unemployment benefits aren’t sufficient and they’re forced to take on gig work to make ends meet.
Continuing claims fell by 38,000 to 1.827 million, marking several consecutive weeks of declines. Given weak hiring trends and elevated initial claims from six months ago, we believe this drop is more likely due to benefits expiring rather than a surge in new employment.