Since early August when risk assets plunged and European peripheral bond yields rose to dangerously high levels investors have been worried about the economy going into a new recession. Since then, Europe has been weak but the economic indicators in the Eurozone are not crashing but just slowing; the region’s economy is likely in a mild recession in this and the next quarter. The US economy is a different story though as economic figures have surprised since late July compared to expectations. Today investors get a bunch of new economic figures out of the US with initial jobless claims and leading indicators as the most interesting.
Can the strength in Initial Jobless Claims continue?
Last week’s initial jobless claims were a huge surprise although the figures around this time of the year are very difficult to seasonally adjust. Initial jobless claims came in at 366K the lowest reading since the second quarter of 2008 pushing the 12-week rolling figures under the 400K level for the first time in over three years (see chart below). Today’s figures are expected to come out at 380K adding further strength to the improving US labour market.
While the initial jobless claims are still hovering in a higher territory than what the economy sported in the last expansion (2003-2007) they are well below the breaking even level for net positive job creation. In other words, the direction is right and the labour market is improving by the month, so if Europe can hold on by only entering a mild recession and China pulls the monetary stimulus lever, we would expect the US economy and labour market to continue improving. However, despite the US economy slowly healing it still remains extremely fragile to adverse developments or shocks coming out of Europe.
Leading indicators for November are expected (15:00 GMT) to climb 0.3 percent MoM down from October’s 0.9 percent reading. Despite the negative drumbeats coming out of Europe and China, the US economy is hanging on and is slowing getting better. Last month’s leading indicator report showed a large improvement in the Conference Board’s gauge of the outlook for the next two quarters and this part of the report will be closely watched today. We expect leading indicators to remain solid in line with recent economic data pointing to an economy that has accelerated somewhat away from the double dip recession vortex.
US GDP likely grew 2% in the third quarter
Following the first GDP report released October 27 on 3Q US GDP showing that the US economy grew by 2.5 percent QoQ annualised the estimate was later revised down in the second report on November 27 to 2.0 percent annualised growth caused by lower than initially estimated inventories. These lower than estimated inventories in the third quarter in combination better than expected economic figures lately (retail sales, manufacturing and housing) are the reasons why growth is now expected to have accelerated in the fourth quarter to 2.75 percent QoQ annualised.
Turning our attention back to today’s GDP release (13:30 GMT), the third GDP report is never a big surprise from the second report so the US economy likely grew by 2.0 percent QoQ annualised indicating that the US economy has accelerated its economic growth for two consecutive quarters since it bottomed out in the first quarter at 0.4 percent QoQ annualised (see chart below).
Peter Garnry,
SAXO BANK