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U.S. initial jobless claims fell in the week ending February 4, 2012
February 9, 2012
- Initial claims dropped 15,000 to 358,000 in the week ending February 4, 2012, which was below market expectations for a 370,000 reading, and building on a 6,000 drop to an albeit upwardly revised 373,000 level (was 367,000) the previous week.
- Continuing claims rose 64,000 to 3,515,000 in the week ending January 28, 2012 partially reversing a 116,000 drop the previous week.
- The four-week moving average of initial claims, which better controls for weekly volatility, fell to its lowest level since April 2008, dropping to 366,250 from a revised 377,250 (was 375,750) the previous week.
- Part of the improvement in jobs growth in recent months, particularly the solid 52,000 gain in construction employment in January 2012 and December 2011 combined, may reflect the effect of an unusually warm winter resulting in fewer seasonal layoffs. With that said, while we do not expect job growth to be sustained at quite the solid 243,000 pace in January 2012, the broadly downward trend in initial claims since the summer remains consistent with our view that the underlying trend in labour markets continues to improve.
US initial unemployment insurance claims declined 15,000 to 358,000 in the week ending February 4, 2012, thereby building on a 6,000 drop to an upwardly revised 373,000 level (initially reported as 367,000) the previous week. The level of claims in the latest week was below market expectations for a 370,000 reading. The four-week moving average of initial claims, which better controls for weekly volatility, declined for a fourth consecutive week, falling to 366,250 from 377,250 (was 375,750) the previous week. Continuing claims rose 64,000 in the week ending January 28, 2012, thereby partially retracing the previous week’s 116,000 decline.
The downward drift in the four-week moving average of initial claims from a recent 422,000 peak in August has been reflected in stronger job growth in recent months with solid 243,000 and 203,000 gains in January 2012 and December 2011 payroll employment that were both well above the previous six-month average of 123,000. Part of the improvement in both the claims and jobs data in recent months, particularly the sizeable 52,000 gain in construction jobs in January 2012 and December 2011 combined, may reflect the effect of an unusually warm winter resulting in fewer seasonal layoffs. With that said, while we do not expect job growth to be sustained quite at the pace of the last two months, the encouraging improvement in the initial claims data continues to suggest that the underlying trend in labour markets is improving.
Nathan Janzen, Economist, RBC Economics
To view charts of today's data, go to
http://www.rbc.com/economics/html_calendars/ca/calendar.html (Canada)
http://www.rbc.com/economics/html_calendars/us/calendar.html (United States)
Recent Economic Updates
U.S. service sector growth surged in January
February 3, 2012
- The ISM non-manufacturing index jumped to 56.8 from 53.0 in December 2011resenting its highest level since last February.
- The “business activity” and “new orders” components each surged to 10-month highs of 59.5 from 59.4, respectively.
- After contracting in December 2011, the “employment” index vaulted to its highest level in almost six years at 57.4.
The ISM non-manufacturing index showed that the service sector expanded in January 2012 and that the pace of growth accelerated sharply as indicated by the gauge rising to 56.8 from 53.0 in December 2011 (a reading above 50 indicates that the sector is generally expanding; higher readings indicate a faster pace of growth). This represented the highest level for the index since last February and was well above market expectations for a modest increase in the January measure to 53.2.
The details of the report mirrored the solid headline. “Business activity” and “new orders” each jumped to a 10-month high in January at 59.5 and 59.4, respectively (up from 55.9 and 54.6, respectively in the previous month). Perhaps most encouraging, the “employment” component surged by 7.6 points to 57.4, which is its highest level since February 2006 and a stark turnaround from last month’s reading that indicated service-sector employment contracted. Rounding out the main components of the report, the “supplier delivery” measure declined to 51.0 from 51.5 in December to indicate that delivery times from suppliers were modestly faster than in the previous month, although still slow (supplier delivery times tend to lengthen when capacity is being constrained).
January’s ISM manufacturing and non-manufacturing surveys indicate that the US economy picked up speed at the start of the new year as the composite index touched a 10-month high of 56.5. Moreover, the gains within the “new orders” components of each measure suggest that this upward growth momentum may well be sustained during the coming months. The reported surge in service-sector employment corroborates the non-farm payroll report released earlier this morning that showed solid broad-based gains. On the whole, today’s reports are encouraging and provide indications that the recovery of the US economy may finally be picking up its pace; however, despite the improvement in labour market conditions, the unemployment rate remains well above the Fed’s ‘target’ range of 5.2% to 6.0%, thereby making it likely that the current highly accommodative policy stance will remain in place for the foreseeable future.
David Onyett-Jeffries, Economist, RBC Economics
U.S. payroll employment surges in January
- January 2012 non-farm payroll employment gained a robust 243,000 following gains in December and November 2011 of 203,000 and 157,000, respectively.
- The unemployment rate unexpectedly dropped to 8.3% from 8.5% in December.
Government jobs fell 14,000 with private payrolls up 257,000.
- Today’s report provided the encouraging news that both employment gains strengthened going into 2012 and the unemployment rate moved lower. Despite this improvement, however, the unemployment rate remains historically high. To assure further improvement in labour market conditions, the Fed will continue to keep monetary conditions highly accommodative. Our forecast assumes that the current Fed funds rate will remain at its current range of 0% to 0.25% going into 2014.
Payroll employment in January 2012 rose a robust 243,000 and clearly outpaced market expectations of a more moderate 144,000 increase. Also encouraging was cumulative upward revisions of 60,000 for the previous two months resulting in gains in December 2011 of 203,000 (200,000 previously) and in November of 157,000 (100,000 previously). Strengthening labour markets going into 2012 were also conveyed by the unemployment rate dropping to 8.3% from 8.5% in December and 8.7% in November.
Expectations were for some slowing in job gains in large part due to the view that the December gain had been buoyed by the transportation and warehousing component jumping 50,200 in the month. This strength was largely due to a 42,200 surge in the couriers and messengers component that reflected increased Christmas purchases over the internet. This has been a growing trend in the past two years where strong December gains were followed by almost equal-sized declines in January that weighed on the overall monthly gain in payroll employment. The BLS, which compiles the employment report, has estimated new seasonal factors that have essentially eliminated this effect. The December gain in the transportation and warehousing component was cut to only 6,700. In January, this component managed to rise modestly by 13,100. This change did not prevent an overall, albeit minimal, upward revision to December payrolls, as it was largely offset by greater strength in professional and business services.
The overall payroll gain continues to be weighed down by declining government employment, which dropped 14,000 in January. Thus private-sector employment gained a stronger 257,000 following solid gains in December and November of 220,000 and 178,000, respectively. Goods-producing industries saw an 81,000 surge in the month that was helped by manufacturing employment showing another solid monthly increase of 50,000. Service-producing jobs were up 176,000 and were led by a 70,000 increase in the professional and business-services components.
The hours worked component of the report indicated that the overall workweek held steady at 34.5 hours although for manufacturing it jumped to 40.9 hours from 40.6 hours in December. The gain in overall employment was thus the main factor sending the index of aggregate weekly hours up 0.2% in the month. The level of this index is already up an annualized 2.6% relative to the fourth quarter of 2011. Such results provide little indication of any marked slowing in economic growth going into 2012. The index for manufacturing was up an impressive 1.2% in the month benefitting from both employment gains and a longer workweek.
The index of average hourly earnings, the principal wage measure in the report, rose 0.2% in the month and 1.9% during the past year. The annual rate is down from 2.1% in December.
The employment report provided encouraging signs that labour markets and economic activity have strengthened going into 2012. Despite the improvement, however, the unemployment rate remains historically high and above the Fed’s view of a so called equilibrium rate of 5.2% to 6.0%. Thus, policy is expected to remain highly accommodative to encourage a further closing of this labour market gap. Our forecast assumes the Fed funds at its current highly accommodative level of 0% to 0.25% going into 2014.
Paul Ferley, Assistant Chief Economist, RBC Economics
U.S. initial jobless claims fell in the week ending January 28
February 2, 2012
- Initial claims fell 12,000 to 367,000 in the week ending January 28, 2012 reversing half of the 24,000 jump to a revised 379,000 (was 377,000) level the previous week. Market expectations were for a decline to a 371,000 level in the latest week.
- The four-week moving average of initial claims, which better controls for weekly volatility, dipped for a third consecutive week, falling to 375,750 from a revised 377,750 (was 377,500) the previous week.
- While the initial claims data continued to point to an ongoing underlying improvement in labour markets, employment growth in December 2011 was boosted by an outsized, and likely temporary, jump in hiring of couriers that reportedly reflected rising Christmas sales over the internet. A retracement of this gain in January 2012 is expected to be the main factor contributing to a lower 110,000 gain in overall payroll employment in the month, which would be down from the 200,000 December gain.
US initial unemployment insurance claims fell 12,000 to 367,000 in the week ending January 28, 2012 retracing half of a 24,000 rise to 379,000 reading (initially reported as 377,000) the previous week. The level of claims was slightly below market expectations for a decline to 371,000. At least part of the volatility in claims over the last two weeks could be a result of difficulties seasonally adjusting the data around Martin Luther King Jr. Day. The four-week moving average of initial claims, which better controls for weekly volatility, declined for a third consecutive week, falling to 375,750 from 377,750 (was 377,500) the previous week. Continuing claims fell 130,000 to 3,437,000 in the week ending January 21, 2012 from 3,567,000 the previous week.
While the downward drift in claims in recent months continues to point to an underlying improvement in labour markets, the effect of today’s report on expectations for tomorrow’s January payroll employment report will likely be limited given that the payroll employment survey was conducted earlier in the month (the payroll survey is conducted in the week containing the twelfth day of the month). The four-week moving average of initial claims was little changed in the January payroll survey week at 379,750 compared to a corresponding reading of 380,750 in December. This would, normally, point to a solid pace of employment growth being maintained in January following a 200,000 gain in December; however, employment in December was boosted by a temporary 42,200 jump in hiring of couriers and messengers reportedly reflecting rising Christmas sales over the internet. A similar-sized decline in hiring in this sector, now that the Christmas shopping period is finished (similar to the hiring pattern in both 2010 and 2009), is expected to be the main factor limiting overall employment growth to a smaller 110,000 gain in January 2012.
Nathan Janzen, Economist, RBC Economics
U.S. growth in manufacturing sector strengthened in January 2012; Construction spending beat expectations in December 2011
February 1, 2012
- The ISM manufacturing index rose to 54.1 in January 2012. This is its highest level since June 2011, although it was slightly below market expectations for an increase to 54.5.
- The “new orders”, “supplier deliveries”, and “inventories” components all rose, while the “production” and “employment” components fell; however, all components except inventories remained in expansion territory.
- In a separate report, construction spending rose a stronger than expected 1.5% in December 2011.
The US manufacturing sector expanded for the thirtieth consecutive month in January 2012, and the pace of growth accelerated as indicated by the ISM manufacturing index rising to 54.1 from 53.1 in December 2011 (initially reported as 53.9). This leaves the index at its highest level in seven months. The Market expected a slightly larger increase to 54.5.
Gains in the ISM index in January were due to increases in the “new orders”, “supplier deliveries”, and “inventories” components. The new orders index increased by 2.8 points to 57.6, which is its highest level since April 2011. The supplier deliveries component rose to 53.6 in January from 51.5 in December, indicating that manufacturers are seeing a slower pace of delivery (when the economy is growing, delivery times tend to become slower due to increasing demand). Inventories continued to fall in the month, although at a much slower pace than in December: the inventories index was 49.5 in January compared to 45.5 last month. Although this weighs on the overall index, it could imply that strong demand is being supplied to inventories rather than new production. The “production” and “employment” indices both fell but remained in expansion territory, indicating that these components continued to grow but at a slower pace than previously. The production index fell to 55.7 from 58.9 last month, while the employment component fell only slightly to 54.3 from 54.8. Inflationary pressures appear to be picking up, with the “prices paid” component rising to 55.5 from 47.5, its first reading over 50 since September 2011.
The Institute for Supply Management (ISM) also released its annual revisions to historical data this week. Based on a recommendation from the Department of Commerce, this year’s revisions cover a period of seven years instead of the usual four. The revisions show only minor changes, with the overall pattern of the index remaining essentially unchanged. Details of the revisions are available on the ISM website.
Today’s ISM manufacturing report indicated that the manufacturing industry continued to expand in the first month of 2012. The details of the report were encouraging, showing that all components expect inventories remained in expansion territory. This sets the stage for the fourth-quarter 2011’s solid increase in goods production to continue into this year and bodes well for overall GDP growth to rise an annualized 2.8% in the first quarter of 2012. This would be unchanged from the current estimate for the previous quarter, although the construction data imply a possible 0.1 percentage point upward revision to the fourth-quarter 2011 rate.
In a separate release this morning, construction spending in the US rose 1.5% in December 2011, beating market expectations for a 0.5% increase. This represents an acceleration from November’s 0.4% pace of growth (initially reported as 1.2%). The strength in December was seen in both the private and public sectors with construction spending up 2.1% and 0.5%, respectively in the month. Spending on non-residential construction showed a particularly rapid increase up 1.9% in the month. This leaves non-residential construction at its highest level since December 2009. Residential construction rose by a slower 0.8% after posting a -0.3% contraction in November (initially reported as 1.8%).
Kirsten Cornelson, Economist, RBC Economics
U.S. consumer confidence unexpectedly declined in January 2012; existing home prices continued to fall in November 2011
January 31, 2012
- Consumer confidence declined to 61.1 in January 2012 from the eight-month high of 64.8 seen in December 2011.
The present situation index fell 8.1 points to 38.4, while the expectations component edged down 0.8 points to 76.2.
- The current employment differential reversed the previous month’s improvement, decreasing to -37.4 from -35.0 in December.
- In another release, the S&P/Case-Shiller 20-City Composite home price index fell by 3.7% on a year-over-year basis in November compared to the 3.4% annual decline seen in the previous month.
The Conference Board’s measure of US consumer confidence fell to 61.1 in January 2012 from the upwardly revised 64.8 reading seen in December 2011 (initially reported as 64.5) that had represented the measure’s highest level since April. The deterioration in consumer sentiment in January comes as a surprise as market expectations were for an increase to 68.0.
The decline in the month reflected deterioration in both in the “expectations” and the “present situation” components, although most of the damage was seen in the former. The present situation index fell to 38.4 from 46.5 in December as consumers’ appraisals of business conditions and the job market were more pessimistic than last month. In terms of the latter, the “jobs hard to get” index rose 1.9 points to 43.5, while the “jobs plentiful” index decreased to 6.1 from 6.6, which had represented its best reading since January 2009. These combined to decrease the employment differential (those saying jobs are “plentiful” minus respondents saying jobs are “hard to get”) to -37.4 from the -35.0 reported in December. The expectations component fell by a more modest 0.8 points to 76.2 as increased pessimism in the outlooks for business conditions was partially offset by improved expectations for the labour market.
While today’s reported decline provides a somewhat discouraging starting point for 2012, the headline measure remains elevated compared to recent troughs seen in the summer and fall, and solace can be taken in the fact that the key expectations component remained relatively buoyant. We assume that the strengthening labour market conditions seen at the end of 2011 will continue into 2012, which should lead to an improvement in consumers’ viewpoints and should provide a modest boost to consumer spending with the growth maintaining an upward trajectory during 2012.
In a separate release this morning, the S&P/Case-Shiller 20-City Composite measure of US house prices declined in November 2011, with the seasonally-adjusted index down 0.7% on a month-over-month basis. The decline was larger than market expectations for a 0.5% decrease and follows a downwardly revised 0.7% drop in October (previously reported as -0.6%). The unadjusted index fell by 3.7% on a year-over-year basis in the month compared to the unrevised 3.4% annual decline seen in October.
David Onyett-Jeffries, Economist, RBC Economics
RBC Economics Research contacts:
Paul Ferley, Assistant Chief Economist
Dawn Desjardins, Assistant Chief Economist
Kirsten Cornelson, Economist
Nathan Janzen,
Economist
David Onyett-Jeffries, Economist
Go to Financial Markets Daily (pdf) for a daily summary of U.S. interest rates and foreign exchange rates.
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