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Claims and home prices — What you need to know in markets on Thursday

Myles Udland
Markets Reporter

It’s a Thursday, so the weekly report on initial jobless claims will cross the tape and likely serve as the day’s biggest economic event.

Also on Thursday morning we’ll get the latest data on manufacturing activity in the Midwest from the Kansas City Fed and an update on home prices from the FHFA.

On the corporate calendar, expect the conversation to still focus around last week’s blockbuster deal by Amazon (AMZN) to acquire upscale grocery chain Whole Foods (WFM), as well as the latest developments from Uber, which said early Wednesday that founder and CEO Travis Kalanick would not return to this role after his leave of absence is over.

Investors will also keep an eye on Oracle (ORCL), which was up as much as 11% after hours following earnings that beat expectations.

Whole Foods inflation

Groceries at Whole Foods are expensive. (There is a reason, after all, the grocery chain earned the moniker “Whole Paycheck.”)

But reports following Amazon’s purchase of the chain indicated the online retailer would seek to cut prices and get rid of this notion that only people able and willing to pay top dollar for their household’s most common recurring cost will shop at Whole Foods.

This, then, led to some asking if a decline in grocery prices at a chain known for high prices would lead to deflation.

The answer is, if anything, the opposite will happen.

“If there is strong competition in the food retail industry and it pushes food prices down but wage growth in the labor market is unchanged, it implies an outward shift in the household budget constraint,” writes Neil Dutta, an economist at Renaissance Macro.

“This frees up money to spend on other goods and services, which drives up the prices for those goods and services.”

In short, Americans spending less money at the grocery store allows them to spend more money elsewhere.

When the price of oil crashed in late 2014 and into 2015, many wondered if this meant the economy was going into recession on the view that oil prices were driven by demand for oil from driving U.S. consumers not the supply of oil. Some three years later, the answer is clearly that there was too much supply in the market, making the lower price of oil a boon for U.S. households.

One day, we will stop discussing what Amazon and Whole Foods’ merger does and does not mean. And, one day, any changes Amazon wants to make to its newly-acquired grocery chain will show up.

But as long as this merger is getting discussed in the context of monetary policy and what it means for the Fed’s inflation target, we’ll keep talking about the deal.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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