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Jobless Claims and Philly Fed Factory Survey Underscore Vulnerable Status of U.S. Economy

Contributed by Northern Trust

By Northern Trust

Initial jobless claims rose 12,000 to 500,000 during the week ended August 14, following gains in each of the last two weeks.  The level of initial jobless claims is the highest since November 2009 (see chart 1).

Although continuing claims, which lag initial jobless claims by one week, fell 13,000 to 4.478 million, the decline reflects folks no longer qualifying under the regular state unemployment insurance program.  These people are eligible for unemployment insurance under special programs.  The tally of continuing claims under the special programs and regular state programs climbed to 10.081 million for the week ended July 31 (see chart 2).  This report highlights the woes of the labor market despite four quarters of economic growth.

The factory survey from the Federal Reserve Bank of Philadelphia showed the first negative reading of the overall business conditions index since August 2009 (see chart 3).  The index is pointing to a contraction in factory activity.  The index tracking new orders fell for the second consecutive month and the index measuring shipments fell in August, the first drop after an entire year of gains.  Although this survey is for the mid-Atlantic region, it casts a shadow on the national factory survey which will be published on September 1.  The ISM manufacturing survey posted a 0.7 point decline to 55.5 in July.  The inference in July was that factory activity was growing but at a slower pace in July compared with June.  It remains to be seen if the national survey will echo a similar message.

Index of Leading Economic Indicators Suggests Slower Economic Growth in Second-Half of 2010

The Conference Board's Index of Leading Indicators rose 0.1% in July after a downwardly revised 0.3% drop in the prior month (previously reported as a 0.2% decline).  The interest rate spread, supplier deliveries and the average workweek made the largest positive contributions to the index in July and more than offset the negative contributions from consumer expectations, building permits and real money supply.  On a year-to-year basis, the index rose 7.5% in July vs. 8.5% in June.  Using the July reading as the proxy for third quarter, the index points to a slower economic growth in the second-half of the year (see chart 4).  DGC - Chart 4 - 08 19 10

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