Thursday’s data had a clear heavyweight. September producer prices rose 1.3%, the largest monthly gain since March 2022, and the 12-month rate reached 6.3%. Bond traders shrugged. The 10-year Treasury yield fell about nine basis points.

What traders expected

Producer prices were forecast to rise 0.5% after 0.4% in August. Retail sales were expected to gain 0.3%, ex-autos at 0.5%. The Philadelphia Fed index was forecast at 26.5 and initial jobless claims at 195,000.

What arrived

Producer prices overshot by 0.8 percentage points. Energy rose 10.8% and gasoline 20.3%, and energy explained over 80% of the 2.6% jump in goods prices. Services added 0.8%, led by trade margins (up 1.4%). Excluding food, energy and trade, prices still rose 0.5% on the month and 5.0% on the year.

Retail sales rose 0.8% to $745.0 billion, against 0.3% forecast, and August was revised up to 1.3% from 1.1%. Excluding autos, sales gained 0.9%. Gas station sales jumped 6.4%, so fuel prices flatter the headline. The control group, which feeds GDP, rose only 0.1% against 0.3% expected.

The Philadelphia Fed index fell to 20.9 from 37.8, below the 26.5 forecast. New orders dropped to 4.3 from 29.2, and the six-month outlook slid to 33.0 from 52.9, its lowest since January. The index measures breadth, so fewer firms reported gains.

Initial jobless claims came in at 199,000 against 195,000 expected, with the prior week revised to 198,000. Continuing claims were 1.710 million. Layoffs remain low.

What markets did

Theory says a PPI miss of this size should lift yields. It did the opposite. On the Treasury’s par curve the 10-year closed at 5.10%, down from 5.19%. Soft demand signals in the control group and Philadelphia new orders are one plausible explanation, and an energy-led shock may be read as temporary.

Stocks rose but unevenly. The S&P 500 gained 0.33% to 7,744 and the Dow added 1.08% to 52,177. The Russell 2000 climbed 1.38% to 2,767. The Nasdaq Composite rose just 0.08% to 26,713, as AI infrastructure shares kept selling off. Health care hit a record high. Gold rose 1.51% to about $4,170 and West Texas Intermediate gained 3.03% to $97.97.

What it means for the Fed

The Federal Reserve meets on 27 and 28 October. Wednesday’s CPI showed core prices at 0.3%, and producer costs now show pipeline pressure beyond fuel. Weaker factory orders and a soft control group point the other way. Companies that cannot pass on higher input costs face squeezed margins, which is a risk for earnings even if demand holds up.

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