Another day, another disappointment in the economic front, where over the past week there has not been one consensus beat. Either tomorrow's NFP number will be the biggest headfake, and the Birth Death adjustment will blow the hinges off the market, or the number will be a total disaster, as needed for QE3. For the week ended May 28, initial claims were 422,000, higher than expectations of 417,000, down from an upwardly (naturally) revised 428,000 (previously 424,000). The 4-week moving average was 425,500, a decrease of 14,000 from the previous week's revised average of 439,500, now that the outlier whopper from a month ago drops out of the moving average. The states with the biggest increase in claims was California, with +7,053 layoffs in the service industry. Continuing claims were also higher than expectations of 3,675K, printing at 3,711K, but, you guessed it, it is a drop from the prevoius number which was revised from 3,690 to, wait for it, 3,712K. Those rolling off benefits and hitting the 99 week cliff naturally gets bigger and bigger as the depression progresses, with 5k less under EUCs and Extended Benefits programs. Elsewhere, US Nonfarm Productivity Q/Q was 1.8% vs. expectations of 1.7% (Prev. 1.6%), while Unit Labor Costs missed expectations of 0.8%, coming at 0.7%, and down from 1.0% previously. Altogether another set of weak data as everyone now focuses on tomorrow's critical NFP number: as a reminder it was the horrible August 2, 2010 NFP data which set off QE2.
According to Goldman, there were no special factors on which to blame the drop:
1. Initial jobless claims fell to 422k in the week ending May 28 from 428k in the previous week. However, the level of claims was higher than the consensus forecast (Median: 417k). The four-week average fell to 425k from 440k previously. Claims are now about 30k higher than the average level in February. In contrast to the sharp increase in late April, today's level no longer appears obviously related to special factors-such as auto production cuts, poor weather, and seasonal adjustment bias (based on the mix of states that have seen claims increase). At the same time, the current level of claims is also probably consistent with ongoing growth in nonfarm payrolls, and is therefore less discouraging than many recent reports. We are holding our forecast for May nonfarm payroll growth at 100k.
2. Separately, the BLS revised up its estimate of Q1 nonfarm productivity growth to 1.8% (qoq ar) from 1.6% previously. Growth in unit labor costs was revised down to 0.7% from 1.0% previously.