US labour market strong; factory activity in mid-Atlantic rebounds

Thenumber of Americans filing applications for unemployment benefitsincreased moderately last week, pointing to still strong labour marketconditions despite signs that economic activity was slowing.Otherdata yesterday showed factory activity in the mid-Atlantic regionrebounded sharply in July, reaching its highest level in a year.That added to recent surveys on manufacturing that have suggested the struggling sector was stabilising.Theimprovement in the regional factory surveys likely reflects a decisionby President Donald Trump not to impose tariffs on Mexican goods afterthe two countries struck a deal on immigration.But manufacturing,which makes up about 12% of the economy, remains hamstrung by weakerbusiness spending on equipment, an inventory glut, a bitter trade warbetween the United States and China, and softening global growth.“Thisbig swing in the data over the past couple of months may reflectchanging attitudes on trade given that the sampling for the June reportsprobably occurred around the time of peak concern about trade policybetween the US and Mexico,” said Daniel Silver, an economist at JPMorganin New York.Initial claims for state unemployment benefits rose8,000 to a seasonally adjusted 216,000 for the week ended July 13, theLabour Department said, remaining in the middle of their 193,000-230,000range for this year.Last week’s increase in claims was in line with economists’ expectations.Theclaims data tends to be volatile around this time of the year becauseof summer factory closures, especially in the automobile industry, whichoccur at different periods.This can throw off the model the government uses to strip out seasonal fluctuations from the data.Layoffsremain low despite the US-China trade tensions, which have contributedto a dimming of the economy’s outlook and led the Federal Reserve tosignal it would cut interest rates at its July 30-31 meeting for thefirst time in a decade.Last week’s claims data covered the survey period for the nonfarm payrolls component of July’s employment report.Claims were little changed between the June and July survey periods, suggesting strong job growth this month.The economy created 224,000 jobs in June.“Firmsremain extraordinarily reluctant to lay off workers and the labourmarket remains extremely tight,” said John Ryding, chief economist atRDQ Economics in New York. “There is no reason to expect anything but asolid jobs report for the month.”The dollar was steady against a basket of currencies, while US Treasury prices fell.Stocks on Wall Street were lower.Thereare, however, concerns that a shortage of workers and the Trumpadministration’s tougher stance on immigration could impede job growth.TheFed’s Beige Book report of anecdotal information on business activitycollected from contacts nationwide published on Wednesday showed somemanufacturing and information technology firms in the Northeast reducedtheir number of workers from mid-May through early July.It said “afew reports highlighted concerns about securing and renewing work visas,flagging this as a source of uncertainty for continued employmentgrowth.”Solid job growth is helping to underpin the economy, whichis slowing as last year’s massive stimulus from tax cuts and moregovernment spending fades.Weak manufacturing and housing, as well as a widening trade deficit are partially offsetting strong consumer spending.The Atlanta Fed is forecasting gross domestic product rising at a 1.6% annualised rate in the second quarter.The economy grew at a 3.1% pace in the January-March period.Theslowdown in activity was underscored by a second report yesterday fromthe Conference Board showing its measure of future economic growth fellfor the first time in six months in June.The 0.3% drop in theleading indicator, the largest since January 2016, “suggests growth islikely to remain slow in the second half of the year,” the ConferenceBoard said.But manufacturing appears to be improving.In a third report, the Philadelphia Fed said its business conditions index jumped to a reading of 21.8 in July from 0.3 in June.That was the highest level since July 2018 and reflected strong increases in measures of new orders, employment and shipments.Theimprovement in manufacturing in the region that covers easternPennsylvania, southern New Jersey and Delaware mirrors other measures onfactory activity.It probably overstates the outlook for manufacturing, however.Asurvey from the New York Fed on Monday showed a mild rebound in itsbusiness conditions index in July after contracting in June.Whileoverall manufacturing production increased last month, output atfactories fell at a 2.2% annual rate in the second quarter, the sharpestdecline in three years, the Fed reported on Tuesday.Manufacturing production dropped at a 1.9% pace in the first quarter.“Thetroubles that have plagued industry continue to linger,” said RoianaReid, an economist at Berenberg Capital Markets in New York.ThePhiladelphia Fed survey’s measure of prices received by manufacturers inthe mid-Atlantic region increased this month, as did a gauge of pricespaid by factories.Both measures, however, remained well below theirlofty readings over the past few month, consistent with expectations ofmoderate inflation.The survey’s six-month business conditions indexjumped to a reading of 38.0 this month, the highest reading since May2018, from 21.4 in June. Its six-month capital expenditures indexincreased to 36.9 from a reading of 28.0 in the prior month.