Unemployment claims jump by 13 percent in one week, overshadowing a positive Leading Economic Index and an improved Business Outlook Survey from the Philly Fed.
The Department of Labor’s weekly report on initial unemployment claims indicated a 13-percent increase from the previous week’s revised total. The advance figure for new claims for the week ending October 13 soared to 388,000 despite expectations for a less-significant increase to 365,000. The big jump was attributed to layoffs at the start of the fourth quarter. The previous week’s “advance figure” of 339,000 was unusually low because one state did not submit its data before the deadline. Because the number was so low, many commentators speculated that the missing state was California, which would have likely boosted the figure significantly. Nevertheless, officials from California denied that their state was the culprit and the week’s “revised figure” was only 342,000. This resulted in an upward revision which was more modest than what is usually seen. Last week’s unusually low total was followed by the current unusually high figure, resulting in a dramatic, 13-percent increase.
From the report:
In the week ending October 13, the advance figure for seasonally adjusted initial claims was 388,000, an increase of 46,000 from the previous week’s revised figure of 342,000. The 4-week moving average was 365,500, an increase of 750 from the previous week’s revised average of 364,750.
The Conference Board’s Leading Economic Index for September brought some good news. Although economists had been expecting a 0.2 percent increase, the actual reported increase was 0.4 percent.
From the report:
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.6 percent in September to 95.9 (2004 = 100), following a 0.4 percent decline in August, and a 0.4 percent increase in July.
Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI increased in September, more than offsetting the decline in August. The LEI has been signaling an economy that is fluctuating around a slow growth trend. The six-month growth rate has slowed substantially, but still remains in growth territory due to positive contributions from the housing and financial components. Meanwhile, the coincident economic index also increased in September.”
The Philadelphia Federal Reserve’s Business Outlook Survey for October brought a more significant improvement than what was anticipated. Economists had been expecting to see the diffusion index climb from negative 1.9 in September to positive 0.5. The report indicated an 8-point advance to 5.7, which made the first positive reading since April very positive.
From the report:
Firms responding to the October Business Outlook Survey reported a modest improvement in business activity this month. The survey’s indicators for general activity returned to positive territory, while new orders and shipments recorded levels near zero. But firms reported continuing declines in employment and hours worked. Indicators for the firms’ expectations over the next six months remained positive.
Indicators Suggest Modest Improvement
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 8 points, to 5.7, marking the first positive reading since April (see Chart). A little over 28 percent of firms reported increases in activity this month, up from 21 percent last month. The demand for manufactured goods, as measured by the current new orders index, decreased 2 points, to -0.6. Shipments rebounded from last month but were roughly flat this month. The current shipments index increased 21 points, to -0.2; inventories were near steady; and firms reported continued declines in unfilled orders and shorter delivery times.
Labor market conditions at the reporting firms remained weak this month. The current employment index dipped 3 points, to -10.7, its lowest reading since September 2009.
The major ETFs expected to respond to the report on initial unemployment claims, the September Leading Economic Index and the Philly Fed’s October Business Outlook Survey are:
Industrial Select Sector SPDR ETF (NYSEARCA:XLI) +0.40%
Consumer Discretionary SPDR ETF (NYSEARCA:XLY) +0.02%
Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) -0.45%
SPDR S&P Retail ETF (NYSEARCA:XRT): +0.25%
Materials Select Sector SPDR ETF (NYSEARCA:XLB) +0.13%
Bottom line: Despite the increase in unemployment claims, the Leading Economic Index for September and the Philly Fed’s October Business Outlook Survey indicate that the economy is slowly improving. The setback in jobless claims demonstrates why the recovery is progressing so slowly.