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FED HANGOVER: JOBLESS CLAIMS, PHILLY FED, LEADING ECONOMIC INDEX

Investors approached the end of a holiday-shortened week, having digested a movement toward peace in the Middle East and a move toward hawkishness from the Warsh Fed.

Last week, 226,000 U.S. workers joined the line outside the unemployment office USJOB=ECI, which was 4,000 fewer than the previous week and 1,000 north of consensus.

Ironing out weekly volatility, the four-week moving average continues to drift sideways, with a slight upward bias.

Fresh claims have been bouncing around the low 200,000s for months. And while May's employment report provided a robust upside surprise, recent JOLTS data showed that despite a spike in job openings, hiring and firing fell by 7.6% and 10.2%, respectively. That supports the notion that the labor market remains in low-hire/low-fire mode amid economic and geopolitical uncertainties.

But those uncertainties come and go. AI looks like it might be around for a while.

"Growing adoption of AI and the cost pressure created by the surge in energy prices are prompting many businesses to take a fresh look at their staffing needs," writes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

On the other hand, ongoing jobless claims USJOBN=ECI, reported on a one-week lag, increased by 1.3% to 1.810 million, 15,000 more than analysts expected.

That's the largest continuing claims number since April. And while continuing claims have been trending lower since late last year, the average unemployment duration has been stealthily climbing. In May, the average jobless duration hit 26.8 weeks, the longest since December 2021.

This suggests that, rather than finding new jobs, benefits are running out for the long-term unemployed, or they're simply leaving the workforce, a theory supported by the decreasing labor market participation rate.

Moving to manufacturing, the Philly Fed business index USPFDB=ECI unexpectedly jumped back into expansion this month, rising 10.7 points to print at 10.3, just a hair stronger than economists predicted.

The positive reading was supported by solid increases in new orders and shipments, while employment improved.

The prices paid element — an inflation predictor — heated up, and survey participants expect it to heat up even further in the near term.

Combined with Monday's Empire State index, Atlantic region factory activity is chugging along at a modest pace in June.

Positive Philly Fed/Empire State numbers indicate monthly growth, while negative readings signify contraction.

But in a bit of good news, the Conference Board's (CB) Leading Economic Index (LEI) USLEAD=ECI improved as expected by a nominal 0.1% in May, marking a partial rebound building on April's upwardly revised 0.2% gain.

The index is an amalgamation of 10 forward-looking economic indicators, including initial jobless claims, ISM new orders, building permits, yield spreads and S&P 500 price performance.

The gain was "fueled entirely by positive contributions from financial components, especially stock prices and the interest rate spread,” writes Justyna Zabinska-La Monica, CB's senior manager of Business Cycle Indicators.

"Despite two consecutive monthly increases, the LEI’s six- and twelve-month growth rates were still negative, suggesting slower economic expansion ahead," she adds. "Consumers are feeling squeezed because everyday costs — especially gas and energy — are rising faster than their incomes."

According to UMich, consumers would agree:

(Stephen Culp)

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