After a very busy data week that finished off with a 4.80 million June payrolls gain and a decline in the unemployment rate to 11.1%, analysts and the markets can look forward to a three-day weekend and a very light data week ahead.
Monday’s nonmanufacturing data for June starts off the week ahead. The regional conditions data released to this point suggested further improvement but stopped short of guaranteeing that the nonmanufacturing ISM reading will follow the lead of the manufacturing report and rise back above the 50.0 breakeven point.
The flash Markit estimate for the month rose to 46.7 from 37.5. Revisions are generally small between the flash and final estimates, so it is a good bet that reading will remain below 50 when that report is released at 9:45 a.m. ET, 15 minutes before the ISM data.
Initial claims keep falling, but COVID resurgence looms
The rate of decline in jobless claims continued to flatten in Thursday morning’s data. While no one will suggest that falling new claims is a negative, many believe the level of new filings should be lower by this point three months after the first COVID impacts.
And it may get worse now that COVID cases are on an uptick in several states, many of which have now reversed some of their reopening plans.
Those backward steps, combined with a diminishing impact from the stimulus measures, are likely to keep both initial and continuing claims levels elevated for some time.
Challenger reported that layoffs slowed in June but remained well ahead of their year-ago levels. For the first time since the crisis began, COVID was not the most-cited reason for layoffs in June. Instead it was market conditions, which has a much more long-term ring to it. Challenger noted that many workers are likely to find that their jobs are gone for good.
The current week’s claims release includes the July 4 holiday, taking away one day that filings could be processed. Its possible that the level of new filings will be artificially depressed as a result, but seasonal adjustment will smooth out most of the noise.
Wholesale inflation to tick up on demand, but still not impress
The June PPI report to be released on Friday is likely to showcase another energy-related increase due to rising demand. But gas station pump prices suggest that rising wholesale energy prices still haven’t passed through to the consumer level. Food prices are not likely to repeat the 6.0% jump posted in May when meat prices surged by 40%.
The result should be another modest increase in the headline figure and another negative year/year rate.
Core PPI prices, excluding food and energy, have declined in each of the last four months, so a small increase in June will not signal a resurgence of inflation pressures or lift the year/year rate too far ahead of the extremely soft 0.3% year/year rate posted in May.
JOLTS data pulls back the curtain on May payrolls surge
Nonfarm payrolls rose by a revised 2.70 million in May before the 4.80 million gain in June reported Friday morning. The JOLTS report to be released on Tuesday will provide a deeper dive on that May data, with hiring activity certainly up sharply in the month.
It’s possible that the hiring surge in the month was simply a return of displaced employees to their old jobs that were never advertised rather than new employees being hired for new jobs. If that’s the case, job openings are likely to disappoint in the month.
Likewise, the Challenger data in recent months have shown that even as hiring activity has picked up in May and June, layoffs also remain brisk. This could show up in the JOLTS data as well.