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Slowdown Signs Mount as Jobless Claims Hit 10-Week High, Philly Fed Index Plunges

Published 2022-05-19, 10:02 a/m
© Reuters.

By Geoffrey Smith -- There were fresh signs that the U.S. economy is starting to cool down on Thursday, as lay-offs hit a 10-week high and a closely watched survey of manufacturing activity took a sharp turn for the worse.

Initial jobless claims rose to 218,000 from a downwardly revised 197,000 last week - ahead of forecasts and the highest weekly number since early March.  

Even so, the numbers are around the level last seen at the 2019 peak of the mini-boom created by then-President Donald Trump's tax cuts. Continuing claims, meanwhile, are still at their lowest level in over 50 years, falling again last week to 1.317 million. The previous week's numbers were also revised down.

The low number of continuing claims are consistent with other figures showing a historically high ratio of vacancies to unemployed, suggesting that the labor market is still red hot despite the start of Federal Reserve attempts to cool it with interest rate hikes.

The real economy is, however, showing clearer signs of slowing down, with department store chain Kohl's (NYSE:KSS) and the specialty apparel retailer Children’s Place (NASDAQ:PLCE) both reporting a sharp weakening in sales from March onwards on Thursday.

In manufacturing, meanwhile, the main index of the Philadelphia Federal Reserve's monthly survey fell to 2.6, its lowest since June 2020 and a much sharper drop than expected from last month's 17.6. Economists had expected a gentle decline to 16.0. The sub-indices for capital expenditures and employment both fell markedly, while one positive element was that the sub-index for prices paid also came off its record high. New orders also held up at high levels. 

While below expectations, the data hit a market that is already well advanced in the process of pricing in a sharp economic slowdown in the latter half of this year. Stock futures pared their losses to trade down less than 1% by 9:15 AM ET, having been down by considerably more before the release.

(CORRECTION: an earlier version of this story misstated the development of the new orders sub-index)

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