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Pre-market futures are up at this hour, off early-morning highs but otherwise seemingly unbothered by economic reports this morning that are less than full flattering. The Dow is currently +300 points, the S&P 500 +50, the Nasdaq +250 and the small-cap Russell 2000 is +25 points. Markets are up strongly over the last month — but that was off a pretty low base.
Weekly Jobless Claims Steady, but Reach 3 1/2-Year Threshold
Initial Jobless Claims this morning came in relatively in-line with expectations — 228K versus 230K estimated — which is -13K from the prior week’s downwardly revised 241K. Aside from one outlier week in early October of last year, we’ve been remarkably consistent for the past year on new jobless claims. This is the sort of metric Fed Chair Jerome Powell might point to as a healthy print for the labor market.
Continuing Claims reached 1.879 million two weeks ago (Continuing Claims are reported a week in arrears from Initial Claims), which is consistent with the ebb-and-flow of longer-term claims over the past six months. But the previous week, which routinely would report above 1.9 million and then revise below the following week, stuck at 1.916 million — the first print above 1.9 million since November 2021.
Is this the first dent in the armor on the employment front? Possibly we’re at the foothills of a higher unemployment reality in the weeks and months to come, but 1.9 million is not in any way a sign that the sky is falling. In fact, only when these levels broach 2+ million longer-term jobless claims over a certain period of time would we consider changing the healthy labor market narrative. Perhaps a fast approach to that 2 million threshold may make investors mindful of this, but we’re not there now.
Q1 Productivity Goes Negative: -0.8%
Quarterly U.S. Productivity numbers are out this morning, with a negative print for the first time since Q2 2022. The headline -0.8% was 10 basis points (bps) lower than expected, and follows Q4 2024’s final +1.5% — which itself was the weakest quarter since Q3 2023. Those first two quarters of 2022 was back when the Fed started raising interest rates from the floor, and was the last period that could reasonably called a recession.
Unit Labor Costs came in hotter than anticipated: +5.7% versus +5.1% expected. This is the highest level we’ve seen since Q3 2020, when we were still deep in pandemic territory. The combination negative Productivity and multi-year highs in Labor Costs are not a recipe for a strengthening economy, but like jobless claims, we’re nowhere near any sort of panic levels.