Weekly Jobless Claims, May Durable Goods Orders, Revised First Quarter GDP

KEY DATA:  Claims: 1.48 million (-60,000); Continuing Claims: 19.52 million (-767,000)/ Orders: +15.8%; Ex-Transportation: +4.0%; Capital Spending: +2.3%/ GDP: 5% (Unchanged)

IN A NUTSHELL:  “The labor market is getting better at a disappointingly slow pace.”

WHAT IT MEANS:  The economy is reopening and people are being called back to work, but the improvement in the labor market remains a lot slower than expected.  Yes, new claims for unemployment insurance fell again, but the level remains near 1.5 million.  That is simply way too high.  The rate of decline largely flattened out in June, which is not a good sign given the acceleration in the reopenings.  The number of people receiving checks slipped below twenty million, but barely.  The decline over the week was reasonably high, but given the huge number of people receiving assistance, it was not as large as we should be seeing. 

Durable goods orders surged in May, but that came after two months of massive declines.  The number to compare is February’s and orders are still off 21% from that month’s level.  The biggest increase came in transportation.  The vehicle industry reopened and aircraft orders actually rose rather than declined due to cancellations.  Every major sector posted a gain, but given the previous declines, the increases were nothing to write home about.   Nondefense, nonaircraft orders, a proxy for capital spending, did improve solidly, but again, compared to February’s level, they are still off 5.6%.  In addition, order books were largely flat, not a good sign for future production.

First quarter GDP growth was unrevised from the previous estimate.  There were some changes in inventories, government spending and fixed investment, but the differences were nothing special.

IMPLICATIONS:I guess the best way to describe the unemployment numbers is disappointing.  The economy is reopening across the country yet layoffs remain at an unimaginably high pace.  If BLS finally figures out how to correctly categorize the unemployment data, it is possible that the unemployment rate will rise in June from the underestimated May level.  The number to compare is about 16.3%, though we cannot be sure since the misclassification adjustment was only estimated.  My rough estimate for the June unemployment rate is 15%.  That would be down from the number to compare but up from the 13.3% which was published.   The problem is that cut backs in companies and governments are offsetting some of the rehirings.  It looks like we will have about six million layoffs in June.  That means the reopening/expanding firms will have to hire back more than six million just to get back to even.  That is a tall order and it means June job gains will likely disappoint.  With the virus starting to run rampant in some early-opening states, it is becoming clear that the recovery will take longer than those who have the V-shaped economic growth pattern expect.  And many of those who believe in the exuberant growth theory are investors.