U.S. Initial Jobless Claims Ease for a Second Week; Supplemental Program Reaches 1.3 Million

Initial claims for unemployment insurance fell last week to 432,000 from 445,000 during the prior week. Consensus expectations had envisioned a slightly smaller decrease. Claims for both last week and the week before were revised downward marginally. The four-week moving average increased to 444,750 (39.3% y/y).

Continuing claims for unemployment insurance edged down 17,000 during the latest week, after increasing 77,000 the week before, which also reflects a slight downward revision. The total number of recipients was 3,362,000; this represented 2.5% of covered employment.

This report included data for a second week of the recently enacted "Emergency Unemployment Compensation" program, a federally funded effort targeting people who have exhausted all other unemployment insurance programs. There were 1,284,252 recipients in the week ended August 2, following 713,968 the prior week. Thus, while the regular state programs showed some reductions among newer beneficiaries, this supplemental program has obviously found a reservoir of necessitous individuals who have been unemployed for quite some time. This is about the same magnitude so far as the number of beneficiaries of a similar temporary program initiated in 2002.

UK retail sales showed a sharp bump up in May of this year. Since that time it has been all downhill for the three major trends in retail sales: 3-mo, 6-mo and Yr/yr. The trends generally display a progressive deterioration in the pace of sales.

Over three-months there is a slight uptick in these deteriorating trends and one that spreads across the main growths we display in the table. Even real retail sales ex- autos show some lift. But retail sales are volatile and vagaries of weather and calendar can imbue a month with unexpected results. If we take the growth in July annualized over the level of sales Q2 we find that quarter-to-date sales are not just losing momentum but declining. The bump up in July was not enough to offset the sharp weakness experienced in June. That suggests that the June/July period taken together is a better barometer of sales trends.

But has Europe already been flattened?

The services and MFG PMIs (form NTC/Markit) for EMU flattened out this month falling month-to-month but barely falling. As a result the services and MFG PMIs are at the bottom of their recent ranges dating back to January 2006. For MFG indices stretch back to 1998 and in that broader range their current reading resides in the 26th percentile, nearly the bottom quartile. But by count MFG PMIs have been weaker than this value only 6% of the time. So while the weakest reading is a lot lower MFG PMIs are rarely lower than they are now.

The MFG reading is the more interesting of the two since it spans a longer time horizon. The services index is still relatively new and untested in a Biz cycle. Still the two indices together paint a weakening picture of the Zone. One unanswered question is how much the recent drop in oil prices will breathe new life into fading sectors. It is still too soon to tell, although German financial experts who were respondents to the Zew survey seem encouraged.