Unexpected Drop for Jobless Claims

Market-Update-E Jansen

Initial jobless claims enjoyed an unexpected drop, reassuring some economists about the job market. Consumer credit failed to impress and wholesale inventories grew.

Initial Jobless Claims

Job market watchers were breathing a sigh of relief when it came to layoffs last week. While the various experts and economists had expected layoffs to slightly increase, first-time claims for unemployment benefits filed during the week ending June 4 actually dipped to 264,000, a decline of 4,000 claims from the previous week’s level total of 268,000, the Employment and Training Administration reported last week.

Why was there relief over a relatively small drop in first-time claims? The Department of Labor’s employment report from two weeks ago showed weaker than expected job creation, which in turn caused various experts to advise paying closer attention to initial jobless claims, as a spike could indicate a recession.

“In the approach to several recessions, initial claims spiked in the months in which non-farm payrolls (NFP) fell sharply and that spike was followed by a subsequent spike in claims (we look at four-week averages),” Steven Englander, Citigroup Inc.’s Global Head of G10 FX Strategy, told Bloomberg. “In the approach to several recessions, initial claims spiked in the months in which NFP fell sharply and that spike was followed by a subsequent spike in claims.”

Similarly, the four-week moving average — considered a more stable measure of employment — dropped to 269,500, a decline of 7,500 claims from the preceding week’s average of 277,000. This too allayed job market-related jitters.

Consumer Credit

Consumer credit for April performed well under market expectations. While consumer credit grew by a total of 4.5 percent for the month, according to figures released last week by the Federal Reserve, it was not as high as market watchers had expected. The market had expected a gain of $18.5 billion in April, the month actually only increased by $13.4 billion, putting total outstanding consumer credit at $3.6 trillion.

Revolving debt, such as credit cards, grew by 2.1 percent to hit a total of $951.5 billion. Non-revolving debt, such as car loans and student loans, increased by 5.4 percent in April to reach a total of $2.65 trillion.

J.P. Morgan Chase’s Daniel Silver told the Wall Street Journal that the slowing pace of growth could be related to “cooling in auto sales,” and added that “We see some moderation in the consumer credit data.”

Wholesale Inventories

Wholesale inventories, a good indicator of wholesalers anticipation of demand from their retailer customers, grew to $587.9 billion in April, marking a 0.6 percent increase over March level and were 0.9 percent higher than April 2015’s level, the Census Bureau reported last week.

Some notable growth areas were inventories of durable goods, which notched up 0.2 percent over March; inventories of lumber and other construction materials increased 1.3 percent; nondurable goods gained 1.3 percent; inventories of farm product raw materials were up 7.5 percent, and drugs and druggists’ sundries grew 2.2 percent.

Sales for wholesalers saw a middling performance, growing 1 percent in April to hit $434.2 billion, but that level was 2.6 percent below April 2015’s total. In any case, April’s wholesale inventories-to-sales ratio was 1.35, compared to April 2015’s ratio of 1.31.

This week we can expect:

Tuesday — Import and export prices for May from the Census Bureau and the Bureau of Economic Analysis; retail sales for May and business inventories for April from the Census Bureau.
Wednesday — May producer price index from the Bureau of Labor Statistics; industrial production and capacity utilization for May from the Federal Reserve.
Thursday — May consumer price index from the Bureau of Labor Statistics; initial jobless claims for last week from the Employment and Training Administration.
Friday — Housing starts and building permits for May from the Census Bureau.

Written by Summit Mortgage Corporation