The Market Today
Another Solid Jobless Claims Report Shows Labor Market’s Slow-and-Steady Healing Continues
by Craig Dismuke, Dudley Carter
Another Solid Jobless Claims Report Shows Labor Market’s Slow-and-Steady Healing Continues: The weekly unemployment claims report continued to show solid improvement in the labor market in recent weeks, despite the slight unexpected uptick in continuing claims in state programs. New claims in state programs fell from 478k to 444k last week, coming in close to expectations, and initial claims in the emergency PUA program dropped from 104k to 95k, the first sub-100k reading since the program was established by the CARES Act last April. Combined, the 539k in total new claims was the lowest reading of the pandemic era and marked the eighth decline over the last 10 weeks.
The one blemish in the report was the 111k increase in seasonally adjusted continuing claims two weeks ago from 3.64mm to 3.75mm. On a non-seasonally adjusted basis, however, continuing state claims edged down 10k to 3.68mm, a new low for the pandemic. Cementing the positive tone for the report, total claims in all programs fell 887k to a new pandemic low below 16mm, a result that was exacerbated by more volatile swings in California’s reporting but which reflected broad improvement across the country. The latest data provides another piece of evidence to support the argument that April’s disappointing jobs report isn’t indicative of a concerning reversal in demand for labor.
Philadelphia Fed Business Index Drops Further than Expected From Decades-High: The Philadelphia Fed’s Business Outlook index fell much further than expected in May as slowing activity offset the impacts of supply chain disruptions and rising costs. The headline index fell from 50.2, the highest reading since 1973, to 31.5, a reading well below the 41.5 expected but still solid by historical standards. In the details, new orders and shipments both slowed while supplier delivery times lengthened to a record level and the breadth of price increases was the widest seen in decades. The dynamics support the idea that supply disruptions and rising materials costs could be weighing on activity. Employment levels slipped while hours worked by existing staff jumped, giving credence to the anecdotal argument that employers are lengthening workers’ hours to support workloads as they struggle to find new employees.
24 HOURS OF MARKET ACTIVITY
Stocks Fall (but Trim Losses) and Treasury Yields Rise (but Close Off Their Highs) After Fed Minutes Mention the T-Word
The major stock averages were volatile again on Wednesday before and after the release of the Minutes from the Fed’s April meeting. Following a weak overnight session across most of Asia and all of Europe, the S&P 500 sank 1.6% at the open before steadily recovering into the afternoon release of the Fed Minutes. However, the index tumbled anew and the 10-year Treasury yield rose to session highs after one of the first headlines to hit the wires showed the topic of tapering was broached by “a number” of officials (more below) when they gathered late last month. However, stocks recovered to send the S&P 500 out near its high mark of the day, down just 0.3%. The 10-year Treasury yield edged down from higher levels but added 3.4 bps to 1.67%, its second-highest close in six weeks. While the mention of tapering at the April meeting was somewhat of a surprise, considering Powell had indicated otherwise (more below), it was also highly caveated and occurred after April’s jobs disappointing, which likely lessened the initial blow to investor psyche.
Global markets appeared relatively unfazed on Thursday by the large intraday declines on Wall Street in yesterday’s trading. A measure of stock prices across Asia Pacific was little changed after a mixed session and Europe’s Stoxx 600 had added 0.6%. While Nasdaq futures were nearly flat at 7 a.m. CT, S&P 500 contracts had dipped more than 0.1% before the latest jobless claims data and Dow futures were down 0.3%. The Treasury curve had shifted down by around 1 bp at most maturities immediately before the unemployment update.
The Fed’s April Minutes reflected the more upbeat outlook described in the statement released at the meeting’s conclusion on April 28. Officials noted that activity had picked up, said the risks to the outlook had receded, and suspected firmer inflation readings were “largely” the result of temporary factors. However, the key sentence from the Minutes appeared to be the statement that “a number” believed that if the recovery continued at its current pace, it could be appropriate to begin discussing tapering asset purchases at upcoming meetings. The statement was the first official mention of tapering discussions and stood in contrast to Chair Powell’s comment after the April meeting that it still wasn’t time to “talk about talking about” tapering asset purchases. However, the statement was less definitive and highly qualified when read in its full context (emphasis added):
“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”
Bottom Line: The Fed’s April Minutes showed there were some who saw the possibility of tapering discussions beginning at upcoming meetings. However, even those officials qualified that belief with an “if” and “might be” and the broader idea of beginning such discussions in the second half of the year isn’t a surprise. Notably, the discussion was also held prior to the release of April’s disappointing payroll report, which could certainly give the Fed pause. Nonetheless, the market’s response to the idea of tapering shows how sensitive the topics of tapering purchases and higher rates have become. And why the perceived threat of faster inflation following April’s CPI report (also released after the Fed’s April meeting) has shaken markets in recent days and will be a key development to watch in the months ahead.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Kroger and Walgreens joined a growing list of U.S. companies to announce that fully vaccinated customers no longer need to wear masks when shopping in their stores. While Kroger also said fully vaccinated staff would not have to wear a mask, Walgreens said its team members would continue wearing face coverings.