Initial jobless claims came in at 608k, above the Street's 600k, but below our 615k estimate. Continuing claims reversed its 19-week downward trend. However, we must note that last week's number was revised up, and the number of claimants with extended benefits increased by more than 44.5k from the previous week, which in itself is not that great.
Although the numbers were better than expected and we admit that the job market may not be as bad as it was in the beginning of the year, we must note that a few factors may have contributed to today's data.
Before explaining this we must define exactly what continuing claims represents. This figure is the number of claimants filing for unemployment benefits every week. Historically, some claimants have skipped one or two (or more) weeks of filing then re-filed, which may have impacted this stat. In addition, we must note that continuing claims lags initial claims by one week. With those things in mind ...
1. Given the lag factor, we think Memorial Day may have continued to play a role in the June 6 continuing claims numbers. During Holidays some claimants either forget or postpone their weekly filings by 1-2 weeks.
2. The exhaustion rate of claimants (the ones with expired benefits) eached its highest level on record, 49.2, in May. So the decline in continuing benefits could be driven by such a high exhaustion rate, as those ex-claimants are no longer included in continuing claims. Such high exhaustion rate will negatively impact consumer expenditure the rest of the year. Remember, most of those people are no longer being paid by the govt and it is likely that they have not yet found a new job nor will they until another 3-9 months down the road ... hopefully.
3. Not all of the auto industry 'victims' have yet been accounted for. Both GM and Chrysler released their plans to reduce headcounts and close dealerships, etc going into July. We think we have only seen some of those come through to-date.
So, we're not saying that everything is as bad as it was in the beginning of the year, but this economy still stinks and that stench can last a while.
Regarding, the leading indicators, it was no surprise as performance of the stock market is used in calculating that figure.
And on Philadelphia's Fed survey, that was a very big surprise, especially the strong new orders index. We are still cautious because again given the current state of the economy, manufacturers will likely just be testing the waters for a while. For this reason, we don't expect such optimism displayed by Philly's Fed survey to continue. It'll still be a bumpy road.