The number of new claims for unemployment benefits being filed in the US spiked more than expected last week. However, data, when we look at the trend, show an improvement.
Initial claims for state benefits rose 19,000 to 348,000. Claims for the prior week came in adjust 3,000 higher than what was reported last week. The estimates had expected only 330,000 new claims for the week ending January 25. The four week average, a better tool to gauge underlying conditions was also up. This average ticked up 750 to 333,000.
This data included the Martin Luther King Jr. holiday which tends to make the number more volatile, especially around federal holidays.
Job growth fell off sharply in December, but was ignored because of bad weather, freezing temperature and blizzards. This weather played havoc with the construction and transportation sectors. The Fed also ignored this number this week as they continued to wind down their QE program. On Wednesday, they announced a further $10 billion reduction in asset purchases per month.
The same jobs report released this week showed people still receiving state claims after the first week fell 16,000 to 2.99 million for the week that ended January 18. This number had been elevated the last few weeks thanks to bad weather which caused people to be unable to look for work. The Consensus is that this number will come down.
US GDP Shows Solid Growth
Thanks to solid household spending and a rise in exports the US economy seems to be on solid footing and expanded nicely in Q4 of 2013. However, the stagnancy in wages could eat away at this growth as we go through the New Year, especially Q1-2 of 2014.
The GDP grew at 3.2 percent. This was down from the Q3 reading which came in at 4.1 percent however was better than we anticipated as some economists had thought the number would come in anywhere from 1.9 to two percent. There was some concern that the earlier government shutdown and lag in restocking business would weigh on the GDP for the final quarter.
Consumer spending was the main driver for this growth, however there was a lot of support from trade and business investment. Consumer spending was up 3.3 percent, the highest rate of growth since Q4 2010. This number is about two thirds of economic activity. It advanced two percent in the third quarter.
Business investment came in at $127.2 billion in inventories, this is the biggest reading since Q1 of 1998 and added 0.42 points to the GDP. Inventories were up $115.7 billion in Q3, adding 1.67 points to GDP. If you exclude inventories, the economy grew at a pretty good pace of 2.8 percent in Q4 and 2.5 percent in Q3.
Overall we are seeing the US economy continue to expand and recover at a nice pace. This could lead to further reduction in the QE program if the numbers continue like this. The question remains, how will equities handle this improvement and the end of the cash inflow from the Federal Reserve?