- Unemployment claims remain in good shape
- ADP employment report expected to show that hiring hasn’t fallen off a cliff
- Weekly EIA report expected to show another seasonal decline in crude oil inventories
Unemployment claims remain in good shape — The unemployment claims series remain in good shape and indicate that layoffs remain at low levels. The payroll hiring data has been weak in the past several months, but the unemployment claims data indicates that businesses are at least retaining their existing employees and are not engaging in a significant number of layoffs. The initial claims series is currently only +20,000 above the 42-2/3 year low of 248,000 posted in April. The continuing claims series is only +8,000 above the 15-2/3 year low of 2.112 million posted in late May.
The market consensus for today’s initial unemployment claims report is for a -1,000 decline to 267,000 following last week’s +10,000 rise to 268,000. The market is expecting today’s continuing claims report to be unchanged at 1.120 million following last week’s -20,000 decline to 2.120 million.
ADP employment report expected to show that hiring hasn’t fallen off a cliff — The market is expecting today’s June ADP employment report to show an increase of +160,000, falling back from May’s +173,000 increase. Today’s expected ADP increase of +160,000 would be significantly below the 12-month moving average of +203,000. However, the ADP series has been significantly stronger than the payroll data in the past two months with ADP in May showing a +173,000 increase (versus the +25,000 increase in private payrolls) and in April showing a +166,000 increase (versus the +130,000 increase in private payrolls). The divergence suggests that either the payroll data is under-counting jobs or the ADP report is over-counting jobs and that the reality is probably somewhere in between.
The market is expecting Friday’s June payroll report to show an increase of +180,000, improving significantly from May’s increase of only +38,000. The Verizon strike knocked 35,000 jobs off the May payroll report, but virtually all of those jobs should come back in Friday’s report for June. That means that Friday’s June payroll report will be overstated by about +35,000 and that the market consensus ex-Verizon is actually about +145,000. The 6-1/2 week Verizon strike started on April 13 and was settled on May 29.
An ex-Verizon June payroll report of +145,000 on Friday would be less than impressive but would certainly be an improvement from May’s very poor +73,000 ex-Verizon report. May’s very weak payroll report threw the Fed for a loop and raised questions about whether the U.S. economy is experiencing a sustained slowdown in hiring. A slowdown in hiring would not be surprising given the year-long corporate profit recession and the need for businesses to trim expenses. In addition, businesses have reduced incentives to hire more employees due to poor labor productivity and rising wages. A sustained slowdown in hiring could snowball into reduced consumer confidence and spending and even into a recession down the road if the hiring slump becomes more severe.
Meanwhile, the market is expecting Friday’s June unemployment rate to rise by +0.1 point to 4.8% following May’s surprise -0.3 point drop to an 8-3/4 year low of 4.7%. The unemployment rate in May actually already fell to the FOMC’s forecast for a 4.7% unemployment rate by year-end and was only +0.1 point above the FOMC’s forecast for an unemployment rate of 4.6% for late-2017 and late-2018.
The unemployment rate has therefore essentially already met the Fed’s idea of full employment. However, May’s drop in the unemployment to 4.7% was less than impressive since it came mainly because of a decline in the size of the workforce rather than from a surge of new jobs.
Weekly EIA report expected to show another seasonal decline in crude oil inventories — The market consensus for today’s weekly EIA report, which was delayed by a day due to Monday’s holiday, is for a -2.5 million bbl decline in U.S. crude oil inventories, a -600,000 bbl decline in Cushing crude oil inventories, a -200,000 bbl decline in gasoline inventories, a +200,000 increase in distillate inventories, and a +0.5 point increase in the refinery utilization rate to 93.5%.
U.S. crude oil inventories have fallen for the last six consecutive weeks by a total of -2.7% due to strong oil demand from refineries that are operating at full tilt to produce summer gasoline. However, U.S. oil inventories have only been showing the normal seasonal decline and remain in a massive glut at +33.3% above the 5-year seasonal average. Meanwhile, U.S. product inventories are more than ample. U.S. gasoline inventories are +11.5% above the 5-year seasonal average and distillate inventories are +17.7% above average.
On the production front, U.S. oil production continues to fall despite the partial recovery in oil prices over the past several months. U.S. oil production last week fell by -0.6% to a new 1-3/4 year low of 8.622 million bpd, which is down by an overall -988,000 bpd (-10.3%) from the 44-year high of 9.610 million bpd posted in June 2015.
