Jobless claims slipped to 233,000 in the week of Juneteenth, but the four-week trend hit a nine-month high. The S&P 500 edged higher on soft economic data as Wall Street's focus turned to tonight's presidential debate and the key Federal Reserve inflation report out Friday morning.
Initial Jobless Claims
New claims for unemployment benefits eased 6,000 from a revised 239,000 in the week through June 22. Wall Street economists expected 236,000 new jobless claims.
While laid-off workers can file online, unemployment office closures for Juneteenth may have affected the total.
The four-week average of claims rose 3,000 to 236,000, the most since September. The ranks of unemployed workers continuing to claim benefits because they were unable to find work rose 18,000 to 1.839 million.
Q1 GDP, Durable Goods Orders
Also on Wednesday, first-quarter GDP grew 1.4%, revised up from 1.3%, the Commerce Department said. However, personal consumption expenditures rose just 1.5%, revised down from 2%.
Meanwhile, data revisions now show the Fed's primary inflation rate, the core PCE price index, rising at a 3.7% annual rate in Q1, which was bumped up from 3.6%.
With the consumer taking a step back, healthy capital spending becomes more important. But the latest signals weren't great. Economists focus on nondefense capital goods orders excluding aircraft. In May, these orders unexpectedly fell 0.6% vs. forecasts of a 0.1% increase. The data can be volatile, so the 3-month trend is a better indicator, but that's running negative as well, with declines in two of the past three months.
Durable goods shipments data suggest that private equipment investment will be a drag on GDP growth in Q2, wrote Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. On top of that, trade could knock about 1.5 percentage points from Q2 growth, with the goods trade deficit rising to $100.6 billion from $98 billion amid a 2.7% drop in exports.
"Expect sharp downgrades to GDP trackers," Allen wrote.
Fed Rate-Cut Outlook
Recent economic signals including soft retail sales, weak home sales and a resumption of the disinflation trend after some contrary data to start the year have raised expectations that the Fed will pivot to rate cuts at the September meeting. A host of retailers have announced price cuts, while the consumer price index showed that new vehicle prices 0.5% in May, the biggest drop since the outset of the pandemic in April 2020.
San Francisco Fed President Mary Daly said in a Monday speech that "the balance between the demand and supply of workers has largely normalized." The Fed has to be on alert because further declines in the demand for labor may show up in higher unemployment, not just fewer job openings.
After the jobless claims and other data, markets were pricing in 65% odds of a Fed rate cut by the Sept. 18 policy meeting, up from 62% ahead of the reports. Markets now see 63.5% odds of at least two quarter-point rate cuts before the end of 2024, up from 60%.
PCE Report
Economists expect the core PCE price index, out Friday morning, to rise 0.1% in May, according to FactSet. That would lower the 12-month core inflation rate to 2.6%, which would be the lowest since March 2021.
The inflation data is part of the Commerce Department's personal income and outlays report. Personal consumption expenditures are seen rising 0.3%. Personal income is expected to rise 0.4%.
In addition to the focus on inflation, economists will focus on consumption and whether stronger spending on services offset tepid spending on goods.
S&P 500
The S&P 500 was essentially flat in early Wednesday stock market action, oscillating between slight gains and losses after the jobless claims data. On Wednesday, the S&P 500 edged up 0.2%, finishing just 0.2% below its all-time closing high on June 18.
Still, 327 S&P 500 stocks fell on the session, while 174 rose.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
