Substantial Drop in Weekly Jobless Claims in May
The Labor Department reported a substantial drop in weekly jobless claims in May, which reversed earlier surges and brought them down from the highest level since October 30, 2021. The previous increase was largely attributed to an unusual rise in fraudulent unemployment applications.
- For the week ending May 13, initial claims for state unemployment benefits declined by 22,000 to a seasonally adjusted 242,000
- This decrease marked the largest drop since November 20, 2021. Economists surveyed by Reuters had projected 254,000 claims for the latest week
Unadjusted claims decreased by 18,605 to 215,810 last week, with a significant drop of 14,042 filings in Massachusetts. Claims also declined notably in Missouri and New Jersey, outweighing notable increases in Ohio and Illinois.
Still Too Many Jobs
The labor market is under close observation for any indications of strain due to the Federal Reserve's aggressive monetary policy tightening, which is its fastest since the 1980s. It is anticipated that the U.S. central bank will maintain unchanged interest rates next month for the first time since it began increasing them in March 2022.
- Although the labor market has shown some signs of cooling, it remains tight, with 1.6 job openings available for every unemployed person in March
- This figure surpasses the 1.0-1.2 range that is considered indicative of a job market that is not generating excessive inflation
Nancy Vanden Houten, the lead U.S. economist at Oxford Economics in New York, stated, "While we expect the Fed to leave rates steady at its June meeting, a resumption of rate hikes can't be ruled out if labor market conditions don't ease more significantly".
Jobless Claims Stable Amid Resilient Market
The strength in the labor market contradicts the Conference Board's Leading Economic Index (LEI), which has been indicating a recession since last year. The LEI fell 0.6% in April, marking its 13th consecutive monthly decline.
- The economy's resilience is also evident in strong consumer spending, as seen by Walmart's decision to raise its annual sales and profit targets
- Shannon Seery, an economist at Wells Fargo in New York, stated, "We expect consumer spending to hold up until we see labor market slack materially spread."
- Goldman Sachs economists speculated that the annual revision to the seasonal factor, which is used to remove seasonal fluctuations from the data, may be distorting the continuing claims figures
Slow Housing & Manufacturing Market
Other reports on Thursday indicated that the housing market is struggling due to the Federal Reserve's rate hikes, while manufacturing activity in the mid-Atlantic region continued to contract, although at a slower pace than the previous month.
- The National Association of Realtors reported a 3.4% drop in existing home sales, attributed to tight inventory, rising prices in many areas, and multiple offers. Housing inventory is currently 44% below pre-pandemic levels
- Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania, said, "The housing market will remain moribund until mortgage rates start to fall later this year."
- Factory activity in the mid-Atlantic region, as indicated by the Philadelphia Fed's general activity index, improved to -10.4 in May from -31.3 in April
- Although the index has remained negative for nine consecutive months, manufacturers have plans to increase employment in the next six months despite their pessimism about business conditions
Rubeela Farooqi, chief U.S. economist at High Frequency Economics in New York, noted, "Re-shoring of supply chains, infrastructure projects, and a stabilization in rates and demand could provide support to manufacturing activity over time."
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