LIVE MARKETS-Have yourself a dual mandate Christmas: CPI, jobless claims, Philly Fed

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HAVE YOURSELF A DUAL MANDATE CHRISTMAS: CPI, JOBLESS CLAIMS, PHILLY FED

Visions of the Fed's dual mandate (price control and full employment) danced in the heads of investors on Thursday, with a sour morsel of mid-Atlantic region manufacturing tossed in for good measure.

For starters, the Labor Department released its November Consumer Price Index (CPI) USCPI=ECI report, or at least part of it.

Owing to the longest-ever government shutdown, the October CPI sample, which tracks the prices U.S. consumers pay for a basket of goods and services, simply didn't happen. So monthly growth numbers were not provided.

Year-on-year, however, CPI notched a cooler-than-expected 2.7%, 0.4 percentage points south of consensus and 0.3 ppts below the September reading.

Core CPI, which strips away volatile food and energy prices, also landed 0.4 pps below expectations at 2.6%, compared with September's 3.0% take.

"Inflation has lost its grip—and the Fed knows it," says Gina Bolvin, president of Bolvin Wealth Management Group. "Today’s CPI print gives the market what it needed: confirmation that disinflation is durable and policy relief is coming. For investors, this is the time to lean into growth with guardrails—be selective, be strategic, and stay ahead of the curve."

The report provides a second look at November inflation and suggests that while price growth remains hotter than Powell & Co's 2% annual inflation target, it's certainly moving in that direction.

Line-by-line, scant monthly data was provided. Gasoline prices rose 3.0% from October. New car prices inched 0.2% higher in the month.

The report did not provide monthly data on cost of shelter and services, two metrics closely watched by the Fed. But year-on-year, shelter and services prices are up 3.0% and 3.2%, respectively, well above the underlying measures.

"The all-important shelter component was unusually weak in the two months leading into November, which may be more noise than signal," says Bernard Yaros, lead economist at Oxford Economics. "Fed Chair Jerome Powell has already warned against reading too much into the latest data due to distortions from the shutdown."

Pivoting to the other half of the central bank's mandate, 224,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI last week, 5.5% fewer than the previous week, which jumped by an out-of-the-blue 24.1%.

The number was a mere 1,000 shy of economists' predictions.

Ironing out weekly volatility, the four-week moving average of initial claims is moving sideways and remains comfortably within the range associated with healthy labor market churn.

Regardless, the recent spate of corporate layoff announcements is yet to have an obvious impact on the claims data.

Ongoing jobless claims USJOBN=ECI, which are reported on a one-week lag, moved in the opposite direction, increasing 3.7% to 1.897 million, or 22,000 short of the mean estimate. This metric remains elevated, coming at a time of weak hiring and consumer survey data that suggests laid-off workers are finding it increasingly difficult to find a replacement gig.

"The Federal Reserve is facing stress in both of its mandates, of employment and prices," writes Skylar Weinand, chief investment officer at Regan Capital. "Inflation is elevated and the labor market is cooling, which is a tough combination for the Fed."

"Both of these mandates need the Fed's attention and the Fed doesn't necessarily have the tools to fix both at the same time."

Finally, the Philly Fed business index USPFDB=ECI surprised to the downside by deteriorating to a reading of -10.2 this month from -1.7 in November, failing to move back into positive/expansion territory as analysts predicted.

According to the Philadelphia Fed's press release, the data "suggest weak regional manufacturing activity this month. The indicator for current activity declined and remained negative, while the new orders and shipments indexes turned positive. The firms continued to indicate overall increases in employment and prices."

This follows Monday's Empire State index, which unexpectedly dipped into contraction.

Positive Philly Fed/Empire State numbers indicate monthly growth, while negative prints signify contraction.

(Stephen Culp)

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