This week’s economic data largely confirmed some recent trends. Namely, a cooling labor market, slowing consumer spending, and a rebound in manufacturing.
Today’s unemployment insurance claims data showed that the four-week moving averages of both initial and continued claims are rising. In fact, initial claims have been trending up since January and are about 15% above January’s low (chart below, light blue line). Continued claims, however, have only trended up less than 2% in the last six weeks (dark blue line).
Importantly, despite these increases, initial and continued claims both remain near historic lows. So, while the labor market is cooling, it remains relatively strong.
This week’s consumer spending data also showed signs of cooling. Retail sales rose just 0.1% in May (chart below) – below expectations for a 0.3% gain. Recreational spending, clothing, vehicles, and online shopping were areas of strength – all rising about 1% or more.
Those gains were partly offset by declines in spending on furnishings and building materials – thanks to rates-related drag on housing activity – and on food. For the year, retail sales are up just 0.1%, as continued inflation, slowing wage growth, and higher rates act as headwinds.
Manufacturing, however, appears to be defying the headwind from rates following the earlier recovery in the manufacturing PMIs. Manufacturing output rose 0.9% in May to its highest reading in 13 months, seeing relatively broad-based strength. Since January, output is up nearly 2% (chart below), led by a 6% rise in vehicle production. So far, though, the manufacturing rebound remains relatively modest.
In response to this somewhat mixed economic data, the major equity indices are flat or up 1% over the last week, yet 10-year Treasury yields are also up a few basis points to 4.25%.
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