Dampness in the forecast: Thursday's economic data

Reuters

Dampness in the forecast: Thursday's economic data

May 16, 2024 at 2:56 pm GMT

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-Dampness in the forecast: Thursday's economic data</title></head><body>

Main U.S. indexes modestly green; Dow breeches 40k

Staples up most among S&P sectors; materials weakest group

Euro STOXX 600 index off ~0.2%

Dollar, crude gain; bitcoin, gold dip

U.S. 10-Year Treasury yield ~flat at ~4.36%

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DAMPNESS IN THE FORECAST: THURSDAY'S ECONOMIC DATA

A data downpour on Thursday was mostly downbeat. Economic indicators largely surprised to the downside earlier in the day, with prior month downward revisions adding insult to injury.

The number of U.S. workers joining the unemployment line USJOB=ECI decreased by 4.3% last week to 222,000, or 2,000 more than expected.

Even so, the trend is on the upswing, with the four-week moving average of initial claims edging higher.

Ongoing claims USJOBN=ECI, reported on a one-week lag, edged up 0.7% to 1.794 million, suggesting the possibility that it's taking longer for freshly fired workers to find suitable replacement gigs.

"Initial and continuing claims suggest that layoffs have risen since the April payroll reference period while hiring slowed," says Ryan Sweet, chief U.S. economist at Oxford Economics. "The unemployment rate is expected to inch higher later this year and early next, peaking just north of 4%."

Turning to the housing market, groundbreaking on new American homes USHST=ECI rose by 5.7% in April to 1.360 million units at a seasonally adjusted annualized rate (SAAR).

The number landed south of the 1.420 million consensus, partially owing a downward revision to the March data.

Meanwhile, building permits USBPE=ECI - considered among the most forward-looking housing indicators - unexpectedly dropped by 3% from March's upwardly revised number to land at 1.440 million units SAAR, 45,000 fewer than anticipated.

Despite the wobble - largely due to high mortgage rates - the ongoing supply/demand imbalance will likely support the sector.

"Residential construction should remain solid despite risks of other areas of the economy slowing down," writes Jeffrey Roach, chief economist at LPL Financial. "Years of undersupply and few homes on the market are supporting the residential markets."

As seen in the graphic below, multiple unit projects were responsible for the gain in starts and the drop in permits. On the single family homes side of the coin, starts and permits were essentially steady.

And now let's talk about goods-producers.

Industrial output USIP=ECI was unchanged in April in the wake of the sharp downward revision to the March data - to 0.1% from 0.4%.

Analysts expected a nominal 0.1% gain.

Manufacturing output unexpectedly dropped by 0.3, while capacity utilization USCAPU=ECI - a measure of economic slack - slackened ten basis points to 78.4%.

"Manufacturing output looks set to remain in a holding pattern for several more months," says Ian Shepherdson, chief economist at Pantheon Economics. "The sharp rise in borrowing costs suggests that equipment business investment will fall soon."

Meanwhile the Philadelphia Fed's Business Index (aka Philly Fed) USPFDB=ECI lost some oomph, coming in at a still-expansive 4.5, but weaker than the 8.0 consensus.

This is of a piece with Wednesday's weaker than expected Empire State report, and appears to suggest that Atlantic region manufacturing is still bouncing down the runway, trying to be airborne.

A positive Philly Fed/Empire State number indicates monthly expansion; negative signifies contraction.

The new orders component plunged into contraction, while prices paid - a potential inflation predictor - cooled down.

Wrapping things up, last month the cost of goods and services imported to the United States USIMP=ECI accelerated, rising 0.9%, or three times the rate analysts expected.

Year-over-year, import prices heated up to 1.1% from 0.4%.

Import and export prices differ from other inflation yardsticks, as variables such as forex and oil prices come into play.

Here's a look at year-over-year import and export prices charted against the dollar index:

(Stephen Culp)

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