Unemployment Claims Exceed Expectations, Yet Robust Retail Sales Indicate Resilient Consumer Demand

Investors absorbed key economic reports for the U.S. job market and consumer spending on the day after the Fed opted to leave rates constant at 5-5.25%, ending the cycle of raises that had been in place since March 2022.

The number of Americans applying for unemployment benefits increased by 262,000, in the week ending June 10, flat from a revised higher 262,000 the previous week and more than the projected 249,000, according to the U.S. Department of Labor.

Concurrently, the U.S. Census bureau revealed a deceleration in retail sales for May, rising at 0.3% monthly, down from the prior 0.4% increase, but above the expected 0.1% decline.

Stocks fell, while the rates market had a muted reaction to today’s data. Traders marginally increased their bets on the Federal Reserve raising interest rates at its July meeting, with market-implied probabilities for a 25-basis-point increase rising from 72% to 74%.

Also Read: Federal Reserve Admits Forecast Errors For Past 2 Years: Expert Says ‘No More Fed Hikes!!!’

US Unemployment Claims: Key Takeways

• Initial jobless claims came in at 262,000 for the week ended June 10, unchanged from a revised level of 262,000 the prior week and well above expectations of 249,000. It marks the second consecutive report of unemployment claims exceeding expectations.
• The four-week moving average for jobless claims, which eliminates week-to-week variability, rose from 237,500 to 246,750, higher than the expected 233,338.
• Continuing jobless claims for the week ended June 3 rose slightly from 1,755,000 to 1,775,000, higher than the forecasted 1,765,000.
• Notable increases in jobless claims were reported in California, up 48,987, and in Texas, up 26,636.
• The U.S. labor market shows early signs of cooling off, in line with Federal Reserve forecasts, but continues to remain tight with an unemployment rate of 3.7%.

May US Retail Sales: What You Need To Know

• Advance estimates of U.S. retail and food services sales for May 2023 were $686.6 billion, up 0.3% from the previous month and 1.6% higher from May 2022. The monthly reading exceeded economists’ forecasts of a 0.1% decline.
• Core retail sales, which excludes motor vehicles and parts, rose 0.1% monthly, as expected, after rising 0.4% in April. In annual terms, core retail sales were 1% higher.
• Excluding gasoline stations, core retail sales were 0.6% higher month-on-month in May, similarly as in April and 4% higher from a year ago.  
• Among different spending categories, the biggest monthly increases were recorded in motor vehicle & parts dealers, up 1.4%, and in food services & drinking places, up 0.4%
• The most significant monthly drags were observed in gasoline stations, down 2.6% monthly and miscellaneous store retailers, down 1%.

Market Reactions

Markets were volatile on Thursday, with futures on the S&P 500 index falling 0.6% an hour before Wall Street’s opening bell. The S&P 500 Index is closely tracked by the SPDR S&P 500 ETF Trust SPY.

Investors raised their expectations on a Fed rate hike in July, with market-implied probabilities rising from 72% to 74%, according to CME Group FedWatch.

The U.S. dollar index, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, fell 0.1%, impacted by a fresh rate hike by the European Central Bank.  

Treasury yields fell slightly rose, with the 10-year yield down by 2 basis points to 3.80% and the two-year yield down by 4 basis points to 4.73%.

Read also: Nasdaq Futures Slide As Traders Plot Moves After Fed’s Rate Skip: Analyst Says Current Scenario ‘Eerily Similar’ To Early 2007

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