Claims fell by 29,000 to 409,000 last week, the second improvement in a row after a couple of sad-sack weeks that were muddied by special events like a new emergency benefits program in Oregon and the layoffs resulting from the parts shortage in Japan.
All told, over the past two weeks claims have fallen by 69,000 — which nearly erases the 74,000 spike in claims in the prior two weeks. In short, we’re back to where we were a month ago.
Still, we have two big problems looming like Godzilla on stilts.
First is manufacturing. The Philadelphia Fed Index showed once again the manufacturing recovery is losing speed. Global demand is still strong, especially in emerging markets, but check this out: the index has fallen to a seven-month low of 3.9 from 18.5 in April. And the sub-indexes were equally terrible, showing that new orders are down, shipments are down, prices paid are down and prices received are down.
That’s a lot of downs. It means that manufacturing is still expanding but at a slooooower and sloooooower pace. This kind of data says the recovery may be in gear but its durability is in question.
Second, we have the U.S. existing home sales data, which clanked a lot more than expected in April — down 0.8%. That was the first decline since February and flew in the face of two straight advances in pending home sales.
Bottom line: The big news events of the week fit together. Until the housing market improves, the lightly-skilled workers who make up most of the current hard-core unemployed will not find the kinds of jobs that push wages higher and juice consumer demand. That’s keeeping a lid on U.S. economic growth, making manufacturers stumble around.
Still, there is a big difference between a slowdown and a contraction. Slowdowns, which is what we are facing now, can serve to stretch out an expansion, albeit at a painfully sluggish pace.
So why hasn’t the market spiraled down into a darkened abyss with flames spewing out from its engines?