US Initial Claims Slow; Trade Gap Widens

The US initial claims data came in above expectations Thursday, but still posted a ninth straight weekly decline that suggests the backlog of claims continues to be worked down.

However, after a sharp dip in the previous week, the level of continuing claims partially rebounded in the most recent data.

The Labor Department reported Thursday that initial claims fell by 249,000 to a 1.877 million level in the current week, above the 1.790 million level expected and following a small upward revision to the previous week’s level to 2.126 million.

The total number of unadjusted new claims filed since the start of the COVID-related shutdowns climbed to 38.8 million. Unadjusted claims fell by 314,604 in the current week, with the state data showing a 106,106 decline in New York initial claims alone.

The Labor Department reported that 623,073 workers filed under Federal Pandemic Unemployment Assistance on an unadjusted basis, less than half of the 1,295,048 reported in the previous week.

Continuing claims, those already receiving benefits, rose by 649,000 to 21.487 million in the May 23 week after a 4.074 million decline the previous week. The insured rate rose to 14.8% from 14.3% in the previous week.

Earlier, Challenger reported 397,016 layoffs in May after a record 671,129 cuts in April, with 209,147 new cuts attributed to the pandemic. The entertainment/leisure sector was once again the largest contributor to the total, accounting for 163,680 of May’s cuts, followed by the retail and services sectors that were also hard hit by the epidemic.

Coincidentally, these sectors were also the biggest contributors to hiring, though the jobs are not the same, with a new emphasis on cheaper food (Taco Bell announced they will hire 30,000 people in May) and online deliveries.

Challenger said that the level of announced layoffs should decline as states reopen, but cautioned that some jobs lost due to the pandemic will not return soon, or perhaps ever.

In other data released, the international trade gap widened to $49.4 billion in April, much larger than the $42.0 billion gap expected, from $42.3 billion in March. Second quarter GDP is already expected to be extremely weak due to plunging consumption and fixed investment, so the net export gap is likely to get little attention.

The COVID factory shutdown and efforts to prevent the spread of the virus slowed trade activity going both ways. Exports fell by 20.5% while imports fell by 13.7%, with declines in capital goods and autos the key factors for both sides of trade activity.

With factories reopening and some restrictions being loosened, the May trade data should indicate some improvement in activity. However, it will take several months before a free flow of data can resume, particularly with China.

Interestingly, the not seasonally adjusted bilateral trade gap with China widened sharply to $22.5 billion from $11.8 billion in March, at the start of the shutdown. Exports rose solidly, but the import gain was much larger.

Some of the initial clamp down on trade in February and March to slow the virus spread appears to have been loosened, but the current uncertainty surrounding the US-China relationship will make it difficult to predict future trade activity.

Finally, nonfarm productivity was revised up sharply to a 0.9% decline in the first quarter from the 2.5% decline in the preliminary estimate. Analysts had expected no revision. While output was revised down to a slightly larger negative, as suggested by the GDP data released last week, it was a huge downward revision to hours worked that was the key factor.

Despite the relative improvement in productivity, unit labour costs are now reported up 5.1% for the quarter, an upward adjustment from the 4.8% increase in the preliminary estimate. Compensation growth was revised up sharply.

Nonfarm productivity is up 0.7% from a year ago, compared with the 1.8% year/year increase in the previous quarter. Unit labour costs were up 1.9% from a year ago, roughly unchanged from the 1.9% year/year pace in the fourth quarter.

Kevin Kastner


Julie Ros

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