Jobless claims are up, but growth is revised upward, too. The two May reports don’t settle the slowdown vs. recession argument

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by BusinessWeek, Standard & Poor’s, and Action Economics staff

Is the U.S. in the midst of an economic slowdown, or a full-blown recession? Two data reports released May 29 appeared to give fodder to debaters upon both sides of the question. Releases on U.S. gross household product for the first proper position—revised higher—and initial jobless claims for the week ended May 24—showing a unimportant increase—were largely in line by economists’ expectations.

First-quarter real (inflation-adjusted) GDP development was revised to 0.9%, from the 0.6% reported preliminarily, in line with the market consensus forecast. The upward revision was concentrated in foreign bargain, at what one. place the two exports and imports were revised lower, but exports less so than imports. Trade contributed 0.8 of a percentage point to growth. Inventories were revised in a descending course, contributing only 0.2 of a percentage point, down from 0.8 in the advance.

Business fixed investment was also revised uphill, to negative 0.2%, from negative 2.5% in the advance report. Consumer expenditure, the largest component in the GDP data, was unrevised at 1.0%. The revised figures showed real final sales with 0.7% growth in the first quarter despite soaring prices, vs. the prior 0.2% decline that had raised fears that ensuing revisions might pull the GDP headline figure into negative territory viewed like well.

"The revised data for Q1 still show a like mix of a big precise grant from trade but a negative drive firmly together from residential construction, side by side a flat figure in opposition to business fixed investment and restraint in actually being marasmus," says Action Economics.

"The upward revision to growth and especially to eventual sales…seem more momentum in the economy, suggesting that Q2 GDP could moreover come in actual," says S&P Economics.

"Overall, the GDP report had a slightly healthier be associated with of vegetation, with more strength coming from final sales and less from inventory investing.," wrote Lehman Brothers (LEH) economist Zach Pandl in a May 29 note. "With Q2 GDP a little while ago tracking well above nothing (0.9% by our estimate), the report will likable intensify debate over whether the economy actually slid into recession in the first half of the year."

U.S. initial jobless claims rose 4,000 to 372,000 for the week ended May 24, about in line with the 370,000 expected by means of the market. The four-week moving average edged down to 370,500, from 373,000. Continuing claims jumped 36,000, to 3,104,000 in the week ended May 17.

"[T]he claims figures have oscillated in a narrow 365,000-to-374,000 range extremely the last four weeks that lies about 50,000 above levels in August of final year, but which are still have a tendency relative to the 420,000 to 470,000 figures that would be expected in a recession," according to a posting on Action Economics’ Web site.

But Bear Stearns (BSC) economist John Ryding appears to have a lower recessionary threshold during the term of the claims data. Although jobless claims have notwithstanding to move decisively into recession territory, he notes, they continue to bounce around close to the 375,000 fit that he believes is consistent by mildly recessionary conditions. Looking ahead to the May employment report, scheduled for the sake of release June 6, Ryding judges labor market indicators for May to be consistent with a decline in nonfarm payrolls of around 50,000 and a rise in the unemployment rate to 5.1%, from 5.0%.