Economic Data Tracker –
Jobless claims flag trouble ahead

Economic Data Tracker

April 21, 2023

Our weekly view on the economy including rationale on GDP, jobs report, and Fed policy decisions. Download the entire weekly edition to view timely charts and data providing a comprehensive picture of how incoming economic data affects our economic outlook.

Trend watch and what’s new this week

Most of the activity-based data rebounded during the past week following the spring holidays (slides 5 and 6), including rail traffic and hotel occupancy.

Air passenger traffic remains remarkably strong, continuing to track closely with 2019. The weekly count surged to 16.5 million, now staying above 16 million for six consecutive weeks for the first time since the summer of 2019. Furthermore, air travel bookings (paid fares) rose 3% through March to $5.4 billion, the highest since May 2019.

Jobless claims steadily climbing, flagging trouble ahead

Historically, jobless claims have been one of the most consistent recession flags. Initial jobless claims, which measures new claims, are up nearly 35% from their lows (slide 7). Similarly, continuing claims, which measure the number of people continuing to getting jobless benefits, has steadily climbed above 1.8 million, which was the pre-pandemic 3-year average. Continuing claims peaked at 23 million during the pandemic recession but peaked at 6.5 million in the aftermath of the Great Financial Crisis in 2009.

Existing home sales down 14 of the past 16 months

On slide 8, existing home sales slumped 2.4% in March. Yet, with continued limited supply, home prices rose for a second straight month, up 3.2% to $380,000, which is 32.7% above the December 2019 level. There’s a wide variation based on location, with prices softening in markets that had the largest post-pandemic increases, especially in the West.

New housing activity showing signs of life

On slide 8, we updated several of the new housing metrics. Single-family permits increased for a second month in a row after 11 straight declines. Housing starts also rose for a second straight month and third time in four months. Both were dramatically impacted by the sharp increase in mortgage rates, which rose more than 3 percentage points during 2022.

Also on slide 8, new buyer traffic held steady in March, up from extremely depressed levels. That helped the NAHB Market Index, which is the builder sentiment survey, edge up slightly.

U.S. surveys improve in April as manufacturing expands

On slide 10, the preliminary March readings for S&P Global's U.S. Purchasing Managers Index (PMI) indices for manufacturing and services both rebounded to multi-month highs. More importantly, manufacturing expanded after contracting for the past five months. 

Our take

While most of the incoming data released during this past week was negative, it does appear that, on balance, there were some positives in terms of their economic implications. Most notably, the April new housing figures are showing signs of life.

Yet, we are most concerned about the rising new and continuing claims for unemployment benefits (slide 7). As we have noted here, the cooling trend in the labor market has materialized, including fewer job openings, and fewer workers quitting voluntarily. Last week, we highlighted weakening temporary staffing trends. Moreover, wages and hours worked have cooled of late, which reduces incomes and will eventually decrease spending. Credit quality has been somewhat stable but is deteriorating, heading back to pre-pandemic levels.

This is all a fancy way of saying, “the recession storm clouds are gathering.” Yet, as we mentioned, just because some data is coming in weaker than in 2022, that doesn’t necessarily mean it’s weak. Those temporary staffing trends are down from very strong 2022 levels but remain above the pre-pandemic 3-year average. Similarly, retail sales have ticked down but are hovering near their all-time high.

Still, if the weakness continues and overall economic growth in 2023 is weaker than 2022, it will appear to be a recession from a gross domestic product (GDP) standpoint.

All of this will factor into the Federal Reserve’s (Fed) decision making. Inflation has been moving in the right direction, but it remains uncomfortably high and well above the Fed’s 2% target. That means the Fed will remain focused on curbing inflation, aka price stability, especially amidst overall solid activity, albeit lower than 2022 levels. As the past two years have illustrated, once the inflation toothpaste is out of the tube, it’s extremely difficult to regain control. Historically, it has taken years and required a recession to do so. Thus, while there’s plenty of reasons for the Fed to "pause“ their rate hikes, we suspect that they will likely raise rates by another quarter point (0.25%) at the May 3rd meeting to ensure that inflation is defeated. 

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