Initial and Continuing Jobless Claims Fall

Initial unemployment insurance claims dropped 16,000 to 614,000 in the week ending June 27. The prior week’s claims data were revised slightly higher, from 627,000 to 630,000. The initial claims data were better than market/consensus expectations, as well as my own.

The four-week moving average of initial claims through the week of June 27 fell to 615,250, from the four-week moving average ending the week of June 20, which was a revised 618,000. Importantly, the four week moving average of initial claims peaked at 660,000 the week ending April 4.

Continuing claims by state unemployment insurance recipients surprised market/consensus expectations, as well as my own by declining 53,000 to 6.702 million for the week ending June 20. The prior week’s level of continuing claims was, however, revised upward from 6.738 to 6.755 million. (Continuing claims data are reported with a one week lag.)

The federal extension of state unemployment benefits continues to grow. I believe the unemployment rate, which rose in June to 9.5% will continue to rise into 2010, peaking near 11%.

Factory Orders Stronger Than Expected

May factory orders, reported this morning, rose 1.2%, exceeding my expectation of 0.9%, and significantly exceeding market/consensus expectations of a 0.5% increase.

While the 3rd increase in the last 4 months of data, on a year-over-year (YoY) basis, factory orders are down nearly 23%. May durable goods orders rose 1.8% over April. Non-defense capital goods orders rose 10% in May over April, driven by a 68.7% rise in non-defense aircraft orders, a very volatile component.

More troubling, May factory shipments fell 0.9%, following a 0.5% decline in April. May factory inventories fell 0.6%, and the inventory/sales ratio remained stuck at 1.45 in May as in April.

My concern here is the economy may not achieve the intensification of inventory liquidation in the second quarter over the pace of liquidation in the first quarter. This would not be a good foundation for production growth, even though it would perversely lessen the second quarter’s real GDP decline.

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