There are a few reports on the U.S. economy worth mentioning this morning. First, data from the U.S. Department of Labor showed that seasonally adjusted initial jobless claims totaled 264K in the week ending June 4th, a decrease of 4K from the prior week’s figure and better that what economists had expected. This was also the 4th week-over-week decline in a row for jobless claims following the spike to a roughly 15-month high at the beginning of May. Many analysts remain hopeful that this recent pullback in initial claims means that the labor market, particularly nonfarm payrolls growth, will rebound in June from a dismal May. The downtrend in claims, though, has likely been helped by the ending of the Verizon strike which contributed to the sharp, albeit temporary, drop in telecom jobs last month. However, the continued decline in initial jobless claims also supports the argument that the recent slowdown in payrolls growth has more to do with lower hiring than an uptick in firing. Moreover, this was still the 66th consecutive weekly initial claims reading below 300K, the longest string since 1973 and a pattern believed to be consistent with an overall healthy labor market.
Next, a report from the U.S. Department of Commerce showed that total inventories for merchant wholesalers in America jumped by 0.6 percent in April (lagged), significantly more than expected and the largest month-over-month increase in nearly a year. The March gain was revised higher and inventories as a result have lifted by 0.9 percent over the past twelve months. Given the way that U.S. gross domestic product (GDP) is calculated, the sharp April gain could cause many analysts to raise their estimates for second quarter economic growth. Total sales increased by 1.0 percent in April, slightly below the consensus forecast and down 2.6 percent compared to this same period last year. The important stock-to-sales ratio slid to 1.35 in April but this is still a relatively high level that is often seen during a recession and suggests that more inventory liquidation could be needed in the medium-term.
Elsewhere, the consumer sentiment index from the University of Michigan slid to 94.3 in the first half of June, slightly worse than expected but still one of the better readings of the past year. Expectations for the year ahead deteriorated but Americans’ views of current economic conditions improved markedly last month. In fact, surveyed consumers rated their current financial situation at the best level since the prior to the “Great Recession,” and this was largely due to respondents’ prospects for gains in inflation-adjusted incomes in the year ahead climbing to the most favorable level in nearly a decade. However, Richard Curtin, director of the Michigan Survey of Consumers, added that “Consumers do not think the economy is as strong as it was last year nor do they anticipate the economy will enjoy the same financial health in the year ahead as they anticipated a year ago. A sustained reduction in the pace of job creation could prompt consumers to hold down spending to increase their precautionary savings.”
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. DoL, U.S. DoC, UoM/Reuters, FRBSLPost author: Charles Couch