Special Report-Preview of US jobless claims and Q1 GDP
Tuesday, May 25th, 2010Last week US jobless claims posted an unexpected sharp rise. The spike higher in the jobless claims report generates concern that the recent recovery in the US labor market may have stalled. If the labor market recovery has stalled it would increase the risk of a double dip recession. The EU debt crisis and fear that contagion from the debt crisis may be a threat to the US recovery and global growth adds to concern about the US labor market. Initial jobless claims surged by 25k to 471k last week. The trade had expected a decline of 7k. Initial jobless claims are back to November levels. Continuing claims declined to 4.665mln from 4.625mln.The improvement in continuing claims was also less than expected. The rise in last week’s jobless claims is difficult to reconcile with the fact that US April nonfarm payrolls posted their strongest growth in almost 4 years. The US has created over 500k jobs since the start of 2010. The Department of Labor said that there were no particular statistical or external factors that they attribute to the rise in claims report. Most analysts expect the jobless claims to soon reflect the improvement in the BLS employment report. Jobless claims have fallen sharply from the peak of the US recession above 600k but the claims remain above the level that would confirm the US is creating more jobs than its losing. Analysts generally look for jobless claims below 400k for confirmation that significant jobs creation has emerged. Initial jobless claims for week ending 05/22 will be released on May 27th and are expected at 455k.ÂÂ
The first estimate of US Q1 GDP was reported at 3.2%. This represents a slowdown from the 5.6% GDP growth rate in Q4. The advance Q1 GDP report was slightly lower than market expectations of a 3.5% rise. The breakdown of the Q1 GDP shows that private consumption and inventory investment were the main growth drivers. US consumer spending accounts for 70% of US GDP and consumer spending rose by 2.6% in Q1. This marked the biggest quarterly gain in US consumer spending since Q4 2006. Q1 GDP growth also reflects a rebuilding of inventories. Business inventories increased by 1.5% in Q1. Business spending on software and equipment rose in first quarter but at a slower rate than in Q4. Residential construction investment also slowed in Q1 along with government spending. Preliminary Q1 GDP will be released on May 27th and is expected to be revised higher by 0.2% to 3.4%. The upward revision should reflect stronger personal consumption and widening of the US trade deficit as exports rise. The Q1 GDP report encouraged speculation that the US recovery is gaining traction. The recovery faces significant headwinds because of the recent turmoil in global financial markets sparked by fear of EU debt contagion and slowing growth in China. The key question, can the US economy continue to expand as Europe and China slow? IMF officials warn that the EU crisis could lead to a double dip recession. We may begin to see more analysts warning of the risk of a double dip recession if employment and GDP growth slow.
Written by Easy-Forex
