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Economic Progress in U.S., Europe: ECB, Jobless Claims & More

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Thursday, June 6th, 2024

All week, we’ve had Friday’s big Jobs Report circled on our calendars. But this morning’s data, especially upon their various releases, also feel pretty important in real time. Pre-market futures have ushered in only modest reactions thus far, with the Dow sliding slightly from -15 points to -30, the Nasdaq from +33 points to +12 and the S&P 500 hovering around breakeven from yesterday’s close. Bond yields have inched up a tad, to 4.30% on the 10-year and 4.73% on the 2-year.

Before we address U.S. economic reports, we first travel across the pond. The European Central Bank (ECB) has decided to lower interest rates by 25 basis points on its three key monetary facilities: Deposit (to +3.75%), Marginal Lending (to +4.50%) and Main Refi (to +4.25%). Just where these rates now sit is less important than the fact that the ECB has made this move — following only Switzerland and Canada in bringing rates down. President Christine Lagarde said underlying pressure in the European economy has eased. Importantly, she also said now that this cut has been made, the ECB is going to wait and see what happens elsewhere.

Of course, this refers to the U.S. Federal Reserve, whose next monetary policy meeting comes next week. Fed Chair Jerome Powell & Co. have kept rates in the 5.25-5.50% range since July of last year, and at the highest levels we’ve seen since the dot-com revolution wound down in the first year of this century. We already are 99% sure no rate cut is forthcoming this month, and surely the ECB knows this. Perhaps the inference is that the ECB will not make a further move until the Fed does.

Initial Jobless Claims ticked up to their second-highest levels of the year. A headline figure of 229K is higher than the 220K estimate and the upwardly revised 221K the previous week. We have only notched above 230K once this year, one month ago, but we appear to be off the sub-220K levels we’ve mostly seen from September 2023 to April 2024. Which is fine, as the “soft landing” we continue to track involves more slack in the labor market, which higher jobless claims help illustrate.

Continuing Claims are reported a week in arrears from new claims. Here we’re still seeing very low levels continue: 1.792 million is barely an uptick from the 1.790 million the prior week. In the 21 weeks thus far reported for longer term jobless claims, we’ve been above 1.8 million only eight times. And even when we get there (if Initial Claims are a forward indication), we’ll still be in a jobless claims environment consistent with a healthy labor market.

The final print on Q1 Productivity is also out this morning. This headline came in stronger than expected by 20 basis points (bps) to +0.2%, though still the smallest level since Q1 a year ago, when Productivity was -0.3%. Higher productivity is always a good thing, whether jobs, wages, etc. are moving up or down; it’s what greases the economic wheel. That we’re higher than anticipated, while still historically rather muted, is a good indication we’re not tipping toward recessionary levels.

Unit Labor Costs for Q1 — the other side of this equation — was even a bigger positive surprise. The +4.0% headline is 90 bps lower than estimates were pointing, and 70 bps below where we were a month ago. This is also good news for the economy overall, as paying less in wages for higher productivity helps domestic strength while also naturally curbing inflation. That said, this is a fairly sizable quarterly drop; while we’d like to see costs lower and productivity rise, doing so in an orderly manner would help continue to foster the soft-landing scenario.

Finally, the U.S. Trade Balance for April is out. Its headline -$74 billion was a nice surprise from the -$76.5 billion estimated trade deficit. It’s still a deeper cut than the previous print of -$68 billion, and the biggest deficit we’ve seen since October 2022. Still, we’re well off the all-time low -$101 billion reported back in March of ’22, and considering the amount of government spending we’ve seen over the past few years, this trade deficit is another economic metric which appears to be relatively under control.

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