Unemployment Claims and GDP revisions are out today. My readers have probably seen the charts elsewhere so, let me give a little commentary.
They are on the rise. This is an unambiguously bad sign. Not only have they crossed back above the level consistent with payroll growth but the momentum seems to have shifted in the wrong direction.
Key questions: What sectors are seeing the layoffs? Is this gas related? Is this Japan related? Is this Euro related? Answers will be tough coming but the JOLTS report should help. At this point this raises uncertainty considerably.
My baseline is still moderate growth consistent with about 250K in payroll growth. Yet, I now expect surprises to be the downside.
Unchanged at 1.8% and the fundamentals are decidedly mixed.
Personal Consumption Expenditures were weaker. This is of course the largest component of GDP and the one that is the determinate of jobs. Yet, it is the one from which we can extract the least information.
Lets look at some investment factors. While investment is a smaller portion of GDP, investment is the business cycle.
Equipment and Software was unchanged from its strong initial estimate, this is a good thing.
Structures, both residential and commercial were revised up. This is not clearly a good thing. We have enormous real time data on structures. We know structures are in the crapper. We know that we are setting up for a rebound. Commercial coming soon, residential I am still guessing at the 18 month range.
In some sense the further down they were the more rebound we had in us
Inventories. Inventories builds were slightly stronger than originally estimated. A mixed signal. I tend to take inventory build as bad growth at this point in the cycle because it suggests businesses were overestimating demand.
Government. There is not a lot to say here. It is subtracting. It continues to subtract. I’ll let the professional pundits yell at each other about.
Net Exports Though the net was unchanged both imports and exports are strong. This is a good sign generally. It also supports data suggesting the non-oil import gap is dropping.
I still expect Q2 to be stronger. Macroeconomic Advisors has revised down. I haven’t looked at what they are revising down on, but I am guessing it is imports and PCE due to gas prices.
The fundamentals still look better and better. Payrolls have shown the right momentum for some time now. Government is of course a persistent drag, but private employment is doing well and the fundamentals for structural investment are steadily building.
All that having being said these are not the kind of real time numbers that you want to be seeing. The manufacturing indexes were all down, which is highly disconcerting.
Yglesias has called this the conservative recovery. Its more than that, it’s the liquidationist’s recovery. What recovery there is, is powered by equipment and software.
If you want to look at higher line numbers, which many people will, then you could say that Investment was about as large a contributor to growth as Consumption. And, of course government continues to be negative.
Digging a bit deeper a liquidationist might say that the consumption is coming back in line and the bloated segments economy, construction and government, are shrinking. What’s going is investment in better capital and technology.