Indicators show strong recovery possible despite stall in labor

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The United States economy continues to improve as states reopen, and a V-shaped recovery remains possible despite troubling signs in the labor market, analysts said.

While overall the data show movement in the "right direction," Edward Moya, senior market analyst at OANDA expressed concern about a "stalling" labor market, as the drop in initial jobless claims was less than projected.

“Regional surveys [both the Philly Fed and Empire State Manufacturing] are also suggesting the V-shaped recovery is intact," Moya said. "The Leading Index report also posted the strongest recovery after last month’s worst reading ever.”

Initial claims
Initial jobless claims fell to a seasonally adjusted 1.508 million in the week ended June 13, from the previous week’s upwardly revised level of 1.566 million, originally reported as 1.542 million, the Labor Department said Thursday.
"New claims for unemployment benefits remain elevated at 1.5 million but have declined for 11 straight weeks,” noted Mark Hamrick, Bankrate.com’s senior economic analyst. “But the decline of just 58,000 feels less like an improvement than what we’d seen in previous weeks."

Economists polled by IFR Markets expected 1.277 million claims in the week.

"On top of that, more than 760,000 additional claims were reported for the week ending June 13 under the expanded Pandemic Unemployment Assistance program,” he said. “That suggests we are still dealing with more than 2 million new claims in the latest week."

Continued claims for the week ended June 6 totaled 20.544 million, a decline from the prior week’s downwardly revised 20.606 million, first reported as 20.929 million.

Economists anticipated 19.8 million continued claims.

"As one gauge of the sustained level of joblessness three months since this devastating wave began to slam the economy, continuing claims remained elevated but also down slightly from the previous week,” Hamrick said. "Like the threat posed by the virus, we must not become complacent about the level of human suffering associated with the economic downturn simply because of its persistence."

On Wednesday during his testimony, Federal Reserve Board Chair Jerome Powell stated he expects "strong" job creation from now through July.

Philly Fed manufacturing
Manufacturing conditions “showed signs of improvement this month,” according to the Federal Reserve Bank of Philadelphia’s manufacturing survey for June.

The current activity index increased to positive 27.5 from negative 43.1 in May, the first positive reading since February.

Economists expected a negative 25.0 level.

The current index for shipments and new orders returned to positive (expansionary) territory as well, with shipments improving to positive 25.3 from negative 30.3 and new orders increasing to positive 16.7 from negative 25.7.

Leading indicators
The Leading Economic Index climbed 2.8% in May to 99.8, after dropping 6.1% in April and 7.5% in March, the Conference Board reported.

Economists expected a rise of 2.4%.

“In May, the U.S. LEI showed a partial recovery from its sharp decline over the previous three months, as economic activity began to pick up again,” according to Ataman Ozyildirim, senior director of economic research at The Conference Board. “The relative improvement in unemployment insurance claims is responsible for about two-thirds of the gain in the index. The improvements in labor markets, housing permits, and stock prices also buoyed the LEI, but new orders in manufacturing, consumers’ outlook on the economy, and the Leading Credit Index™ still point to weak economic conditions. The breadth and depth of the decline in the LEI between February and April suggest the economy at large will remain in recession territory in the near term.”

The coincident index grew 1.1% in May to 95.3, after a 10.4% drop in April, while the lagging index fell 1.9% in May to 111.4, after gaining 1.7% in April.

“Despite a slew of much better-than-expected results from the [nonfarm payrolls] report, retail sales and the regional surveys, investors will still be skeptical of the economic rebound until continuing claims decline strongly,” Moya said. “The recent spikes across several states across America may also have an impact on the jobless claims data over the next couple of weeks. U.S. stock prices could stagnate here.”

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