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Unemployment Declines, But Spenders Still Staying Home


A mixed bag of economic numbers this week.


Editor's note: The following is a free issue of The Lavery Insight which was sent to subscribers yesterday. For a FREE trial, regular economic forecasts and analysis, and a breakdown of today's economic reports click here.

Initial Jobless Claims Slower; Continuing Claims Rise to a Record

Initial jobless claims for the week ending June 6 surprised expectations by declining 24,000 to 601,00.The prior week's initial claims data were revised higher from 621,000 to 625,000.

The 4-week moving average for initial claims fell to 621,750 in the week ending June 6, relative to the prior week's 4-week moving average of 632,250.

Both the weekly initial claims data and the 4-week moving average of initial claims have been improving, and are below the levels at which they peaked.

In contrast, continuing claims by state unemployment insurance recipients are reported with a week's lag. In the week ending May 30, continuing claims rose 59,000 to a new high at 6.816 million. Continuing claims for the week ending May 23 had been reported last week with a decline of 15,000. It was, however, revised higher by 95,000 from a first estimate of 6.662 million to the revised level of 6.757 million, 6,000 above the prior week.

The incidence of recipients exhausting the full 26 weeks of benefits is also at a record.

Continuing claims have not yet peaked. A peak in continuing claims will likely be concurrent with the trough of the recession, which still lies ahead, quite possibly by year-end.

May Retail Sales: the Consumer is Still Very Weak

May retail sales matched my above consensus estimate of a 0.5% gain. A 3.6% increase in spending at gasoline stations (reduced demand, but a 10.6% increase in gasoline prices) was a big factor. Gasoline station sales accounted for fully two-thirds of the May retail sales advance. The March retail sales decline of 0.4% was revised to show only a 0.2% fall.

On balance, retail sales have been flat in 2009. In May, without both the 3.6% gain in gas station sales and a 0.5% increase in sales at auto dealerships, retail sales would have been up only 0.1%.

In GDP terms, the combination of the April and May retail sales numbers was 2.7% below the first quarter average for nominal or current $ retail sales. This clearly supports a decline in real personal consumption expenditures, which we estimate as dropping at a 1.5% or more annualized rate in the second quarter, contributing to the decline we expect in 2Q:'09 real GDP.

Nominal retail sales in May have declined 6.8% on a year-over-year (YoY) basis, the worst YoY comparison in this downturn.

April Business Inventories Slashed by 1.1%

Business inventories were cut 1.1% in April, matching our expectation. Significant further liquidation lies ahead. The March decline in inventories was revised to show a larger drop of 1.3%.

April business inventories were down 6.6% for the year. April was the 8th straight month in which inventories declined.

The inventory to sales ratio (I/S) declined slightly in April to 1.43 from 1.44 in March. The I/S is still very close to its 8 year high.

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