Instant view: Jobless claims up; GDP unrevised

NEW YORK Thu May 26, 2011 9:18am EDT

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NEW YORK (Reuters) - New U.S. claims for unemployment benefits unexpectedly climbed to 424,000 last week from a revised 414,000 in the prior week, pointing to a painfully slow improvement in the nation's job markets.

Corporate profits in the U.S. unexpectedly contracted in the first quarter to record their first decline in more than two years and the economy grew at the same pedestrian pace as previously estimated, a government report showed on Thursday.

KEY POINTS:

* The Labor Department on Thursday revised the prior week's claims number up from an originally reported 409,000. Economists surveyed by Reuters had forecast that claims last week would decline to 400,000, rather than rise. * The four-week moving average of unemployment claims, considered a better measure of trends since it smoothes out weekly variations, eased slightly to 438,500 from a revised 440,250.

* Gross domestic product growth was unrevised at annual rate of 1.8 percent, the department said in its second estimate, below economists' expectations for a 2.1 percent pace.

COMMENTS:

KEVIN LOGAN, CHIEF U.S. ECONOMIST, HSBC SECURITIES, NEW YORK

"The economy is not growing so fast that it's creating so much job growth and bringing down unemployment claims. There is a possible link to the slowdown in auto production."

"At this level, we might still be in the 200,000 area with payrolls but it's not showing any further improvement than earlier in the year."

GEOFFREY SOMES, SENIOR ECONOMIST AT STATE STREET GLOBAL ADVISORS GDP:

"A bit disappointing from a markets point of view that it didn't see an upward revision, though I was always a bit suspect to those expectations.

"Where the disappointment actually came in this revised print was in consumer spending. Spending rose 2.2 percent -- not horrible, but that's a downward revision from the 2.7 that we originally saw.

"The overall impression I get from this print just reminds me that this is a recovery that's just muddling along. We're being shaken by these persistent headwinds, some seem to be dissipating, some new ones come along.

"It's a shaky recovery, it should be sustained but it's going to continue to underwhelm as the year proceeds."

claims:

"I would have been much happier to see claims continue to drop back below 400,000 but we can't seem to break through that.

"We would expect claims will drop below 400,000 in the coming weeks.

"Jobs look like they've joined the recovery party here but the claims number is reminding us we should be a bit cautious about how strong we expect this jobs recovery going forward to be."

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT

"The (Treasuries) market is firmer after this duo of disappointing data with five-year notes leading the charge, though, again, the ranges parameters are not being challenged so (the market is) firmer, but hardly a breakout threat.

"This is pretty much par for this week's course, but in light of the data, surprising. The claims number and upward revision to the prior week suggest that May's private non-farm payrolls will be rather softer than last month and the soft real final sales data should have been a bit of a concern.

"Still the range-binding action is the point and even a double 'bullish' surprise can't change that."

ROBERT DYE, SENIOR ECONOMIST, PNC FINANCIAL SERVICES, PITTSBURGH

"We have to see this as a continuation of soft data that we have seen. The biggest thing with the GDP revision is the dialing down of consumer spending and the dialing up of business investment. This also includes the effects from bad weather, high gasoline prices and the Japan disaster at end of the quarter."

"There is no doubt the economy has slowed. We will call the first half of 2011 as a soft patch. We should see growth accelerate in the second half in the 3.0 percent to 3.5 percent area.

"For May, we are looking at 180,000 to 200,000 for payrolls. This continues the pattern of a moderate profile, but the danger of a moderate profile is that we are more susceptible to downside risks like high oil prices."

GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI

"The softness in consumer spending is what we should keep our eye on. Clearly consumers are vital to the recovery. With higher energy prices in the second quarter we would not expect consumption to be a lot better than the number we saw this morning. It was revised to a 2.2 percent growth rate from 2.7 percent. The economy is still growing; that's the good news. The disappointment is that it's softer than a lot of people were hoping to see at this point in the cycle.

"Unfortunately, new jobless claims are holding above the 400,000 level which suggests job creation may taper off a bit, but we think that's just temporary. We're still in the point in the business cycle where companies need to hire workers. Even if the economy isn't growing very fast, we'll probably see decent job growth compared to what we saw last year."

CARY LEAHEY, SENIOR ECONOMIST AND MANAGING DIRECTOR, DECISION ECONOMICS, NEW YORK

"Claims are soft. It's indicative of some significant slowdown in employment growth relative to the last few months, but I don't know anyone who will have the courage to pencil in a troubling May payrolls number. The market would argue that any figure in the neighborhood above 125,000 would be disappointing. but not earth shattering. Savier investors remember there's a certain amount of volatility in the payroll series."

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

On revised Q1 GDP:

"The big surprise on the downside is that consumer spending was revised lower to 2.2 percent from 2.7 percent, with even larger downward revisions to real disposable income, while core PCE prices also saw a marginal downward revision, to 1.4 percent from 1.5 percent...While rebounds from temporary problems in Q1 weather and defense are still seen, Q2 has its special negative factors too (notably the hit from Japan, particularly in autos). Q1 data that suggests the underlying picture, particularly from the consumer, was weaker than previously thought, may push estimates for Q2, recently mostly on the firm side of 3.0 percent, to a little below 3.0 percent."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

On jobless claims:

"Given that nothing unusual was reported as having skewed the data, this fourth gain in the past seven weeks adds to worries that the labor market advancements -- much like other market indicators (especially manufacturing) -- have lost momentum. As we are about to enter another seasonally volatile season (factory closures) even somewhat more sensitive to hardships given supply chain shortages from Japan, it will take some time to interpret unbiased layoff trends."

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