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Jobless Claims, Philly Fed Both Better than Expected

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Thursday, August 18, 2022

Better-than-expected economic data released this morning has turned pre-market futures around: Jobless Claims and a new manufacturing survey from Philadelphia are both casting some sunshine in areas that have gone murky of late. The Dow is +35 points at this hour, the Nasdaq is +25 and the S&P 500 +6 points.

Initial Jobless Claims came in at 250K, well below the 260K expected and lower than 252K the previous week — which was itself revised downward by 10K. Analysts had been watching carefully to see if cycle highs (originally reported a week ago) would be breached, especially so soon after we were posting 202K new jobless claims as recently as late May (which was the last time these numbers were sub-230K). So today comes something as a reprieve to the labor force, as 250K remains consistent with an overall healthy employment scenario.

Continuing Claims, reported a week in arrears from new claims, did show a rise, albeit marginally: from 1.43 million posted a week ago to 1.437 million today. While notably off the lows of 1.33 million in late June and 1.306 million in mid-May (the lowest level in more than 50 years), and the highest we’ve seen since the first week of April, anything below 1.5 million — even 2 million — long-term claims per week illustrates a labor force able to support itself.

Philly Fed for August also put up a pleasant surprise positive figure this morning: +6.2 versus expectations of -5.0, and notably better than the -12.3 posted for July. This also ends the two-month streak in negative territory, which was expected to continue into this month. Previously, the Philly Fed had not posted a negative monthly headline since the first half of 2020 — in the crater of the initial impact of the pandemic.

What gives analysts an even bigger sigh of relief is this Philly Fed number — tracking manufacturing productivity in the sixth-largest city in the U.S. — follows a crash of -42 points from the Empire State survey — tracking manufacturing in the fourth-largest state in the union. We were bracing to witness the collapse of manufacturing productivity in the Northeast, but those fears prove to be misplaced at this juncture.

After the opening bell today, we expect to see new Existing Home Sales results for July. If recent housing sector news is to bear out here as well, then look for another downward move on seasonally adjusted, annualized units of pre-owned homes. Analysts expect the headline to reach 4.81 million versus 5.12 million posted a month ago. However, if, like in labor force data this morning, the challenges in the home-selling market are not as dire as predicted, this may be another sigh of relief, at least for those invested in existing homes.

What this all means in broader context, of course, is that the Fed can continue cranking up interest rates to combat inflation, without direct fear of collapsing employment or domestic manufacturing. This would infer the green light is on for another 75 basis-point (bps) hike a month from now, which would bring the Fed funds rate to an even 3% from 0% just five months ago. We’re in “good news is bad news” territory right now, although successfully taking air out of the balloon without popping it would be a definite feather in Jay Powell’s cap.

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