Personal Incomes, Jobless Claims Disappoint

Personal incomes rose less than expected and jobless claims surprised analysts with a surge on Wednesday, as growing optimism met with sobering data.

Weekly unemployment claims rose to 313,000 on a seasonally adjusted basis, up over 7% from the prior week. The 4-week moving average for claims rose 2% to 294,000. The rise in claims was far above economists’ expectations of a fall in total claims to 286,000.

Personal incomes rose less than expected and jobless claims surprised analysts with a surge on Wednesday, as growing optimism met with sobering data.

Weekly unemployment claims rose to 313,000 on a seasonally adjusted basis, up over 7% from the prior week. The 4-week moving average for claims rose 2% to 294,000. The rise in claims was far above economists’ expectations of a fall in total claims to 286,000.

The expectations for falling joblessness come from a general optimism that the United States was seeing a stronger labor market bolstered by declining energy costs and greater investment in production by American manufacturers and retailers. However, the unexpected rise in claims means that unemployment is rising to its highest level since September.

Although initial claims are rising, total insured unemployment fell to 1.7%, the lowest level since December 2000. Total unemployed insurance recipients have fallen from a peak around 2.9 million in January of this year to slightly above 2.3 million. The decline is the result of extended unemployment benefits expiring at the beginning of 2014, which reduced the total number of benefit recipients.

The largest increases in claims were in Minnesota, Montana, Wisconsin, New York, and Colorado. The largest claims decreases were in California, New Jersey, Pennsylvania, Oregon, and Massachusetts.

Personal Incomes Stagnate

While unemployment claims are on the rise, personal income growth is falling. In October, personal income rose 0.2%, while disposable income also rose 0.2% after falling 0.1% in the prior month. The growth in disposable income is the result of deflation and not thanks to rising incomes. In October, the consumer price index fell 0.3% thanks to a decline in food and energy costs. Excluding food and energy, the CPI rose 0.2% in October.

Despite growing disposal income, personal consumption expenditures (PCE) rose lower than expected. The real PCE, adjusted for price changes, rose 0.2% in October, below the 0.3% rise that analysts had expected. The PCE has risen 1.4% year-over-year, or 0.7% on an annualized basis for 2014. 

The PCE indicates that consumers are spending more aggressively when adjusting for changing inflation rates. As with the CPI, falling energy and food costs affected personal spending the most. Excluding food and energy, the PCE rose at a 2.2% rate in October.

Durable Goods Orders Weaken

Despite a rise in PCE, durable goods orders fell 0.1%, which was a smaller decline than the 1% fall in September. The weakest readings were for motor vehicles and parts, which “more than accounted for the decrease in durable goods in both October and September,” according to the BEA. Non-durable goods orders rose 0.5%, a reversal from a 0.3% decline in September. Service expenditure rose 0.1%, a fall from 0.2% in September.

Weak consumer spending met weak business spending. Non-military capital goods spending excluding aircraft fell 1.3% and total business equipment spending in October fell. Economists expected more aggressive spending as businesses plan for more consumers spending throughout the United States. However, weak personal income growth suggests that consumer-spending growth will remain constrained, while weak economic conditions in China and the EU limits export capacity for U.S. firms.