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Jobless Claims, PCE "Steady As She Goes"

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Thursday, May 31, 2018

We continue the banquet of economic data during this holiday-shortened week this morning with both new Initial Jobless Claims, which we see every Thursday morning ahead of the opening bell, and Personal Income and Consumer Spending numbers. These follow yesterday’s private-sector payroll results from ADP (ADP - Free Report) and Q1 GDP revision, and are ahead of tomorrow’s non-farm payroll report from the Bureau of Labor Statistics (BLS), including a new Unemployment Rate.

Keeping on the employment front, Initial Jobless Claims again dropped into the historically low range of 200-225K last week, posting 221K new claims. This is down 13,000 from the previous week’s unrevised 234K, which was the first week in a month that was higher than this new, low range. Continuing claims also fell last week, to 1.726 million from 1.74 million the previous week, itself an almost unbelievably low number.

Economists have been saying we’re at peak employment for a year now. Incredibly, the labor market just keeps getting tighter. Though employment has been on a positive trajectory for many years, it’s only been in the last 18 months or so we’ve seen industry laggards like Construction and Manufacturing picking up slack. Indeed, in yesterday’s ADP report, the Construction industry led the pack with 39K new jobs in April. In that long-term jobs growth trajectory, it wasn’t uncommon to see Construction report negative jobs in a given month.

Tomorrow’s BLS report will put some meat on these bones, as it will go into lots of detail about employment trends. This includes the U-6, aka “real unemployment,” which for April reported 7.8% — the lowest read since December 2001. Headline unemployment hit 3.9%, the first time we’ve seen a 3-handle on headline unemployment since December 2000, before George W. Bush moved into the White House.

We will also see important metrics like wage growth, which articulates other aspects of our economy such as consumer confidence (workers who earn more feel more free to spend more). Predating these figures is this morning’s Personal Income and Consumer Spending report. Income came in as expected at +0.3% for April, as March’s read was revised down 10 basis points to +0.2%. Consumer Spending, however, posted a positive surprise — +0.6% from the expected +0.4%, and up from the upwardly revised 0.5% in March. Personal Consumption Expenditures (PCE) reached +0.2% in April.

All of these numbers point to steady growth both in the U.S. labor market and wages. “Steady” being the operative word — should we be seeing spikes in any of this data, this might point to economic growth becoming more unruly, thus provoking the Fed to raise interest rates higher, faster. As the data shows this morning, such dangers are not pending. The market is already pricing in a quarter-point raise from the Fed in a couple weeks, so “steady as she goes” for now.

Mark Vickery
Senior Editor

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