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Firing on All Cylinders: Jobless Claims, ECB, Retail Sales

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Thursday, June 14, 2018

More Goldilocks than Goldilocks — this may be the best way to describe the current economy, not only here in the U.S. but around the globe, as well. This morning brought forth some new data for the markets to digest — Jobless Claims, Retail Sales and a new policy speech by European Central Bank (ECB) President Mario Draghi — and all of it is nothing short of stellar. This all follows yesterday’s very orderly quarter-point interest rate hike by the Fed, which was so baked into the cake it moved markets not at all.

Initial Jobless Claims continued their amazing run of the past couple months, with 218K claims keeping within the historically robust 200-225K initial claims. We had previously been ratcheted down the the 225-250K range for years, and as economists would tell us we’d reached full employment in the U.S., we started to believe we’d hit the floor on new claims. Not so. Sub-225K claims doesn’t just indicate a good jobs market, it illustrates a great one!

Continuing Claims, which for quite some time during the post-Great Recession recovery eyeballed 2 million claims as a psychologically pleasing number, has now plunged below 1.7 million for the first time since before disco was invented, to 1.697 million. These are truly terrific numbers from a labor market perspective, and with interest rates only climbing 25 basis points at a time, we also are not seeing a spike of inflation we might expect from such strong domestic employment.

Retail Sales doubled expectations in May, to +0.8%. Subtracting near-term auto sales volatility, this number actually goes up to +0.9%. Even taking out autos AND gasoline prices — and the Energy segment’s rebound is one of the biggest economic stories overall — the figure still hits +0.8%. This means retailers are able to bring up pricing beyond specific areas like fuel costs. April’s headline read was revised up a tenth to +0.4%.

Import Prices were also hotter than expected to +0.6% for May, with an upward revision for the previous month to 0.6% as well. Export Prices also outperformed estimates to +0.6%, and year over year Exports are up 4.9%. Imports are +4.3% from this time a year ago. More profound strength, albeit without factors such as trade tariffs to mar results, which we do expect to see hit the tape in the months to come.

Finally, the ECB has decided to keep interest rates unchanged, but the bigger news was that its policy of buying back assets — basically the European Union’s (EU) version of the Quantitative Easing (QE) program we’d installed here in the States when Ben Bernanke was heading the Fed — is scheduled to taper down beginning in October, and will be ended completely by the end of the year. This means the EU is also gaining confidence in its comprehensive economy, despite problems in Italy and Spain of late, and Mario Draghi has decided this is the year to take the training wheels off.

The EU has a ways to go to catch the U.S. in terms of robust economic development, and domestic numbers are actually showing that gap widen, but hat they are now getting on the same trajectory means everybody should be making money soon. For sure there are plenty of burgeoning geopolitical risks in various locations around the globe — including here at home — but for now, we can sit back and enjoy the fact that we are currently firing on all cylinders. Market futures are up 20 minutes before the opening bell today.

Mark Vickery
Senior Editor

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