US Equity And Economic Review: The Market Retreats From A High (Again)

This week’s employment news was mixed. Initial unemployment claims increased for the third consecutive week, this time to 294,000. While some commentators argued that the Verizon strike caused this week’s increase, the DOL release did not specifically mention a primary cause. This gain combined with last week’s lower than expected employment report is cause for modest concern. In contrast, the JOLTs report was positive, with more openings than hires. This relationship is positive for wages; it indicates not only that employees should have additional leverage in negotiating pay but also that employers will be more willing to increase salaries to keep current workers and attract new ones. However, JOLTs is a less significant report; the recent increase in initial unemployment claims is more important.

The week’s best news, however, was the 1.3% increase in retail sales:

The chart shows this data series moved sideways for the last year, a potentially concerning pattern. This makes the strong upside move all the more important. The following table from the report shows broad-based increases:

All sectors save two (building materials declined 1% while general stores sales were “0”) were positive.

The Atlanta Fed’s GDPNow model – which has been fairly accurate — increased to a strong 2.8% in the second quarter.  But it’s still too early to place too much emphasis on this report. 

Economic Conclusion: It’s possible the employment situation is weakening, but we have insufficient data to draw a firm conclusion. However, weekly initial unemployment claims data has quickly risen in significance. The retail sales report is very noisy, so arguing that we’ve seen a “turnaround” is premature. But at minimum, last week’s strong number indicates the U.S. consumer is still willing to spend.

Market Analysis: This week, two bond market charts provide the best explanation for the equity markets: