As usual, Wall Street got itself into a bit of a tizzy when the September Consumer Price Index came in slightly higher than forecast and the latest initial unemployment claims rose to a 14-month high.
Some reports attempted to infer that the increase in first-time claims indicated a weakening labor market, but that interpretation was misguided.
The US Labor Department reported that first-time claims rose to a seasonally adjusted 258,000 for the week ending October 5. This was the highest total since August 5, 2023, up 33,000 from the previous week and well above the forecast of 230,000. Florida and North Carolina, two of the hardest-hit states, posted a combined increase of 12,376, according to the original data. Additionally, a strike by 33,000 Boeing workers impacted the figures, with Michigan recording the largest gain in claims, up 9,490 for the week.
“Claims will likely continue to be elevated in states affected by Helene and Hurricane Milton, as well as the Boeing strike, until these issues are resolved,” said Nancy Vanden Houten, lead US economist at Oxford Economics. “We believe, though, that the Fed will view these impacts as temporary and still expect it to lower rates by 25 basis points at the November meeting,” she added.
More thoughtful analysts pointed out that there will likely be another surge in first-time claims for October and possibly November due to the effects of Hurricane Milton.
In fact, some analysts suggested that first-time claims may remain elevated until early next year if the Boeing strike isn’t settled soon, assuming there are no further storms like Helene and Milton.
However, the rebuilding efforts in the aftermath of Milton and Helene are expected to boost employment and potentially increase the cost of building materials, which could flow through to the CPI in the coming months.
The headline details from the CPI data should not have been shocking: a rise of 0.2% month-on-month, compared to the 0.1% rise forecasted by the overly optimistic market.
The annual rate of 2.4% was also 0.1% above market forecasts, although it was the lowest annual reading since the start of 2021.
Excluding food and energy, core prices increased by 0.3% for the month, bringing the annual rate to 3.3%. Both core readings were also 0.1 percentage point above forecast.
These small differences do not significantly affect the likelihood of another rate cut from the Fed, which is now viewed as almost certain by the markets.
What is clear is that the drop in energy costs (fuel, petrol, and oil) in September will be reversed by this month’s sharp rise, due to geopolitical tensions, meaning the October reading could be higher.
Therefore, investors should expect inflation (as measured by the CPI) to be a little higher for a while on a headline basis, and initial jobless claims are likely to rise due to the effects of Milton.
