December Import and Export Prices and Weekly Jobless Claims

KEY DATA:  Imports: +0.9%; Nonfuel: +0.4%; Exports: +1.1%; Farm: +0.6%/ Claims: +181,000

IN A NUTSHELL: “Prices are filtering upward, but with the labor market no longer improving, inflation is not likely to affect the economy.”

WHAT IT MEANS:  Yesterday we saw that consumer costs rose solidly, at least when you factor in energy expenses.  Today’s import price numbers point to continued increases in prices, but again, it should largely be in the energy component.  Prices of imported goods surged in December, led by huge gains in crude oil and petroleum-based products.  Meanwhile, food was down, capital goods prices were flat and consumer and vehicle costs rose minimally.  So, don’t get too worked up about the import price increase.  On the export side, farmers must be smiling.  Agricultural export prices jumped again and over-the-year they are up by more than five percent. Not surprisingly, petroleum export costs were solidly.  In addition, building product prices also rose at a strong pace.  The robust housing market is affecting prices not just in the U.S. but also around the world.

Jobless claims soared last week to the highest level since the end of last August.  A number of factors may have been at work.  The holiday season, coupled with the virus, may have limited the number of people filing, or the filings taking longer to process.  In addition, the new stimulus bill may have drawn unemployed workers who exhausted the benefits back into the system.  However, the four-week moving average, which smooths out the ups and down, bottomed in mid-November and has been above 800,000 for the last month.  That is way too high. With the latest stimulus bill extending benefits, look for this number to rise in the near future.    IMPLICATIONS:If you are wondering why longer-term rates have doubled since early August, one place to start looking is inflation.  No, it is not out of control or even high.  But you can only argue that a 52-basis point 10-year Treasury note is rational if the outlook for inflation is for no inflation. In addition, the economy is coming back and we did see the largest growth rate in history in the third quarter.  The historically low 10-year rate simply made no sense and a movement back toward a level more consistent with a realistic economic outlook had to come.  And it has.  Will we see further increases in rates?  The expectation that the Biden administration will propose a massive new stimulus package could put more pressure on rates.  However, it is not clear when that bill would be passed, or what it will ultimately look like.  In the interim, it is hard to argue that the economy will continue growing strongly.  Yes, new stimulus checks are going to stabilize things, but there continues to be weakness in segments of the household and business sectors.  That argues for more moderate growth, at least until any new monies are available.  As for the Fed, it will continue to churn out data and members will continue to give speeches, but don’t expect anything to happen on the rate side for a very long time.