Jobless claims remained stubbornly high in the most recent weak, falling to 387,000 from another upward revision to 389,000 the previous week. This confirms other employment data such as the JOLTS (job openings and labor turnover survey) data, which showed a drop in job openings in April, earlier this week; the survey of the Business Roundtable also showed that large companies are pulling back on hiring in response to weaker demand in the second half of the year.
Separately, the purchasing managers’ index (PMI) fell to 52.9 in June, down from nearly 54 in June, but staying above the threshold of 50 which signifies growth; the index is now at an 11-month low. The slowdown was broad-based, with the only increase in activity occurring in new orders. This is somewhat reassuring for the summer, as it suggests that we might see some residual strengthening, especially in light of a slowdown in inventory accumulation. The bad news, of course, was a simultaneous slowdown in both production and hiring, which points to another disappointing month for employment. The manufacturing sector had been a major driver of employment gains earlier in the year.
We also saw a sharp drop in prices, which largely reflected the recent fall in oil prices. Steel prices, however, have also softened in response to weakening global demand. This tracks with a slowdown in China’s manufacturing index, which was released earlier in the morning. Exports from China were particularly weak to Europe, their largest trading partner.
Bottom Line: The Federal Reserve has good reason to be more concerned about the economy. Board members are hoarding what little ammunition they have left, to guard against an even more systemic slowdown, tied most likely to the debt crisis in Europe. Unfortunately, it appears that they will have to use it later this year.