Strong jobs data offsets negative GDP

Thursday’s economic data

U.S. markets are likely to take the rough with the smooth following mixed reports on the health of the U.S. economy. Indeed stock index futures look slightly better in early trading while government bond yields are holding near recent lows on hopes that monetary stimulus will remain intact for longer than expected.

The second glance at first-quarter GDP was substantially worse than the expected downwards revision from a near standstill. Real GDP in the first three-months of the year contracted at a 1% annualized pace. The two main drags on first quarter performance came from slower inventory building and lower non-residential investment spending, both of which were weaker than first thought. How big a deal is this? Well, if the answer is that the weather disrupted construction and that it prevented companies from making and taking deliveries of goods, then we should expect a rebound in activity throughout the second quarter.

Somewhat counterbalancing the weak GDP reading was the latest granular signal from the labor market, which revealed ongoing improvement. In combination with still strong consumer spending data within the accompanying GDP report, the declining number of Americans signing for unemployment claims signals optimism ahead. The headline initial claims reading of 300,000 marked a 27,000 drop on the prior week and was below a predicted reading of 318,000.

The latest number brings down the widely-watched four-week moving average of claims to its lowest since August 2007 at 311,500. To put the, albeit slow,  improvement in perspective, the reading of continuing jobless claims in the week ending May 17 of 2.631 million marks a reduction of 363,000 or 12.1% over the prior year.

Chart – Four week average claims at lowest in almost 7-years 

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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