Investors analyzed a surge of economic data on Thursday, revealing a stronger-than-expected performance in consumer spending.
The Federal Reserve paused rate hikes but indicated the need for two more increases this year. The labor market exhibited slight softening, as shown in the weekly report on initial jobless claims.
Retail sales surpassed expectations, indicating robust consumer activity in the US economy. Manufacturing activity displayed resilience, offering positive signs amidst economic conditions.
Strategists at Bespoke Investment Group noted more signs of strength than weakness in the data. Thursday’s news provided a range of insights for investors, supporting a favorable economic outlook.
Last week, jobless claims exceeded expectations, indicating a softening labor market with 262,000 Americans filing for unemployment benefits. The reported number was the highest since October 2021, surpassing economists’ estimated consensus of 245,000. Signs are emerging that suggest the labor market will face increasing pressure.
In contrast, retail sales showed resilience, increasing by 0.3% month over month, contrary to estimated declines of 0.2%. May’s retail sales also demonstrated year-over-year growth of 1.6%.
The data suggests a mixed economic landscape, with a weakening labor market but strong retail sales performance.
Jackson believes the Federal Reserve should cease further rate hikes, considering two more potential hikes excessive. The strategist expressed the opinion that the current level of rate hikes is sufficient.
The remarks were made in response to the Fed’s decision and its potential impact on the labor market.
More Report of Jobless Claims
The Labor Department’s third report revealed unchanged initial claims for state unemployment benefits.
The seasonally adjusted claims remained at October 2021 levels, totaling 262,000 for the week ending June 10. Economists’ forecast for the week was 249,000 claims, indicating a higher-than-expected figure.
Unadjusted claims increased to 249,212, reflecting a rise of 28,763 claims. Minnesota saw a rise of 3,664 claims, while Texas experienced a jump of 7,123 filings. Notable increases in California were attributed to an ongoing strike by the Writers Guild of America.
Georgia, Florida, Illinois, Indiana, Connecticut, and New York also reported significant rises in claims.
Conrad DeQuadros, a senior economic advisor at Brean Capital, mentioned the possibility of a rise in layoffs and a slowdown in job growth.
However, DeQuadros noted that the current situation does not yet signal a yellow alert on job expansion.
The number of people receiving benefits after the initial week increased to 1.775 million, indicating a proxy for hiring. The claims report highlighted that this level is still low by historical standards.
Manufacturing Sector Nutralising Downfall
The fourth report from the Fed indicated a marginal 0.1% increase in manufacturing output in May. This followed a significant surge of 0.9% in April. The manufacturing sector’s output growth exhibited a slight slowdown between the two months. The combined data suggests a mixed picture for the labor market and manufacturing sector performance.
New York state’s factory activity data revealed a surprising rebound in orders and shipments in June. The Federal Reserve Bank of New York’s general business conditions index expanded significantly to 6.6, exceeding economists’ expectations.
However, the Philadelphia region’s manufacturing activity continued to contract, except for improved shipments. Even the generation of Employment also at a par level.
The manufacturing employment index indicated stable overall employment conditions. The data suggests that inflationary pressures may be tempered, but risks in manufacturing persist.
Recession and Inflation in the US
In May, the consumer price index showed a cooling of inflation to 4% compared to the previous year. Oxford Economics’ lead US economist noted that consumer spending could delay a potential recession.
The Federal Reserve announced on Wednesday that it would hold off on interest rate increases. The central bank did signal the possibility of two rate hikes later in the year to address inflation. The Fed’s concern lies with the persistent strength of the labor market, surpassing estimates in April and May.
The Federal Reserve’s focus on addressing inflation is influenced by robust labor market performance.
Expert’s Remark
JP Morgan Asset Management’s global market strategist, Jordan Jackson, expressed concerns about the labor market. Jackson stated that the labor market is a crucial indicator of an impending recession. Signs are emerging that suggest the labor market will face increasing pressure.
Jackson believes the Federal Reserve should cease further rate hikes, considering two more potential hikes excessive. The strategist expressed the opinion that the current level of rate hikes is sufficient.
The remarks were made in response to the Fed’s decision and its potential impact on the labor market.