- U.S. unemployment claims expected to show small increases but remain in favorable shape
- Chicago PMI report expected to show an upward rebound but remain below the boom-bust level of 50.0
- Weekly market focus
- Next week’s U.S. economic schedule is expected to be mostly on the mildly strong side
U.S. unemployment claims expected to show small increases but remain in favorable shape — The market is expecting today’s weekly initial unemployment claims report to show a small +3,000 increase to 270,000 after last week’s -5,000 decline to 267,000. Meanwhile, the market is expecting today’s continuing claims report to show a slight +1,000 increase to 2.196 million after last week’s sharp decline of -47,000 to 2.195 million.
The unemployment claims series are both mildly elevated, but not to the extent that causes any real concerns about higher layoffs since both of the unemployment claims series are still within shooting distance of recent decade-plus lows. The initial claims series is only +12,000 above the 42-year low of 255,000 posted in July. The continuing claims series is only +49,000 above the 15-year low of 2.146 million posted in October.
The U.S. labor market in general remains in good shape with payroll growth running at a monthly average of +211,000 over the last three months. Meanwhile, the U.S. civilian unemployment rate dropped to an 8-year low of 5.0% in Oct-Nov, which was only +0.3 points above the FOMC’s median forecast for the unemployment rate of 4.7% over the next 3 years.
Chicago PMI report expected to show an upward rebound but remain below the boom-bust level of 50.0 — The market is expecting today’s Dec Chicago PMI report to show a +1.3 point increase to 50.0, recovering part of November’s -7.5 point plunge to 48.7. November’s level of 48.7 was only +2.9 points above the 6-1/3 year low of 45.8 posted earlier this year in February. The Chicago PMI index has now been below the expansion-contraction level of 50.0 in two of the last three reporting months, indicating that the Chicago-area manufacturing sector is contracting.
On a national scale, the market is expecting this coming Monday’s Dec ISM manufacturing index to show a small +0.4 point upward rebound to 49.0, recovering part of November’s -1.5 point decline to a 6-1/2 year low of 48.6. The ISM index in November fell below the expansion-contraction level of 50.0 for the first time in 3 years, illustrating the poor condition of the U.S. manufacturing sector. The ISM manufacturing new orders sub-index is in a similarly weak condition, having fallen by -4.0 points in Nov to a 3-1/3 year low of 48.9. That suggests that manufacturing orders are contracting and that the orders pipeline is sparse for the manufacturing sector. Nov factory orders were down by -4.5% y/y overall and by -6.5% y/y ex-transportation, providing another indicator of the weak level of order flow into the manufacturing sector.
The U.S. manufacturing sector is in a recession due to the petroleum sector contraction combined with weakness in U.S. manufacturing exports caused by the strong dollar and weak overseas economic growth. The only positive factor for the U.S. manufacturing sector at present is the strong level of U.S. vehicle sales.
Weekly market focus — The markets next week in the first week of 2016 will focus on (1) crude oil prices, which have recently been a key driving factor for the world equity and bond markets, (2) Friday’s payroll report (expected +200,000) and whether it affects market expectations for the Fed’s next rate hike, (3) the Chinese Shanghai Composite stock index, which posted a 4-1/2 month high on Dec 23 but then fell back and kept tensions high about the Chinese economy, and (4) Wednesday’s release of the Dec 15-16 FOMC meeting minutes, which may shed some additional light on the Fed’s decision to raise interest rates at that meeting.
Next week’s U.S. economic schedule is expected to be mostly on the mildly strong side — Next week’s U.S. economic schedule is busy and is expected to be mostly on the strong side. Strong reports next week are expected to include (1) Monday’s Dec ISM manufacturing index (expected +0.4 to 49.0), (2) Wednesday’s Dec ADP report (expected +194,000), (3) Wednesday’s Dec ISM non-manufacturing index (expected +0.1 to 56.0), and (4) Friday’s Dec unemployment report (payrolls expected +200,000 and the Dec unemployment rate is expected to be unchanged from Nov’s 8-year low of 5.0%).
Weak reports next week are expected to include (1) Tuesday’s Dec total vehicle sales report (expected 18.00 million vs Nov’s 18.05 million), and (2) Wednesday’s Nov factory orders report (expected -0.2% after Oct’s +1.5%). Wednesday’s Nov U.S. trade deficit report is expected to widen mildly to -$44.25 billion from -$43.89 billion in October.