Jobless Claims & US PMI Data Still Signal Modest Growth

Today’s updates on US economic data is a bit of a yawn, but that’s okay because the numbers are still trending positive, albeit moderately so. The initial June estimate of the manufacturing purchasing managers index from Markit Economics ticked down to 52.2 from May's 52.3, but that’s still well above the neutral 50 mark and so this benchmark tells us that the sector is still growing at a decent if unspectacular pace. Meanwhile, initial jobless claims last week jumped by 18,000 to a seasonally adjusted 354,000, but the worst you can about this series at this point is that it’s treading water. Then again, the year-over-year trend for new unemployment filings remains continues to fall at a healthy rate and so today’s numbers still point to modest healing for the labor market.

Let’s take a closer look at the numbers, starting with US Manufacturing PMI. According to Markit, the data reflects a manufacturing sector that’s expanding. It’s a relatively slow pace, but the fact that today’s PMI number continues to hold above the 50 mark implies that the June release of the ISM Manufacturing Index (scheduled for July 1) will again signal growth after slipping into contractionary territory in the May report.

Jobless claims don’t have much downside momentum these days, but new filings continue to hug the 350,000 mark, which is near a five-year low. That’s an encouraging sign for thinking that the labor market is still minting new jobs on a net basis, which suggests that we’ll see more of the same for payrolls in the summer releases: modest growth.

Looking at the year-over-year change in unadjusted claims data reflects a similar trend. Claims dropped 8% last week vs. the year-earlier level, which is in line with the decline rate in recent history.

The bottom line: today’s PMI and jobless claims data signal a near-term future of slow/modest growth. That’s hardly surprising, given that recession risk remains low, as I discussed earlier this week in updates of the Economic Trend & Momentum indices. The market may be frightened by the news that the Federal Reserve may wind down its monetary stimulus program next year. But let’s remember that phasing out stimulus would be a byproduct of an economy that’s expected to grow on a sustainable basis without central bank support. Yes, that’s a good thing, when and if we reach that point. In the short term, however, transitioning to a post-crisis era for monetary policy will surely be rocky. But as long as the macro outlook remains upbeat, higher levels of market volatility look like noise rather than a warning sign for the economy.