Economic Slowdown Signaled By Disastrous Flash May PMI Reading

Jobless Claims Stay Low

Before getting into the seemingly imminent Economic Slowdown, let's discuss the jobless claims. In the week of May 18th, jobless claims fell 1,000 to 211,000. 

As you can see from the chart below, the past couple jobless claims reports have settled in between the spike in late April and the trough in early April. That’s good news because the spike only meant there was a chance the labor market was weakening. 

Investors needed to see a few more weeks of bad data before coming close to calling for a recession. Even if claims don’t ever make a new cycle low, it’s not an issue. They are still very low.

4 week average fell back down to 220,250 from 225,000. It was mistaken to suggest that heightened jobless claims were supportive of the burst in layoff announcements earlier in the year. We still don’t know if the spike in claims a few weeks ago was related to Easter. But it doesn’t matter now as they have fallen. 

Continuing claims increased 12,000 which pushed the 4 week average up 5,500 to 1.674 million. This data lags by one week, so I wouldn’t be surprised if continuing claims fall in next week’s update.

Weak Kansas City Fed Reading

Strong May Empire Fed and Philly Fed readings increased expectations for the rest of the regional Fed reports. Therefore, many were disappointed by the Kansas City Fed reading. 

As you can see from the chart below, the index fell from 5 to 4 which missed the consensus for 6. This report isn’t a disaster, but quells my optimism for the May ISM PMI. Basically, this lowers the odds the PMI increases significantly. That could change after the rest of the regional Fed readings come out. This could be a one-off report.

Production index fell from 12 to 2 and the volume of new orders index fell from 10 to 4. Volume of shipments index fell from 9 to -2. 6 month expectations index looks a little better as the composite increased from 11 to 12. Production index increased from 14 to 20. Volume of shipments index increased from 14 to 23. Capex index increased from 23 to 27. 

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Gary Anderson 9 months ago Contributor's comment

If Steve Bannon were president he would say we should endure the coming slowdown. I wonder how glued Trump is to that dangerous thinking?