Unemployment Claims at Lowest since 2000, Retail Sales Rise

In further signs of an improving U.S. economy, both important unemployment claim statistics have fallen to their lowest level in nearly a generation and retail sales have shown a sharp increase.

Weekly initial unemployment claims rose to 274,000 in the week ending August 8, an increase of 1.9% from the previous week. However, the previous week’s level was revised by 1,000 to 269,000, and the 4-week moving average, which economists primarily use to see if a major trend is emerging in unemployment claims, fell by 1,750 from the previous week’s revised average.

In further signs of an improving U.S. economy, both important unemployment claim statistics have fallen to their lowest level in nearly a generation and retail sales have shown a sharp increase.

Weekly initial unemployment claims rose to 274,000 in the week ending August 8, an increase of 1.9% from the previous week. However, the previous week’s level was revised by 1,000 to 269,000, and the 4-week moving average, which economists primarily use to see if a major trend is emerging in unemployment claims, fell by 1,750 from the previous week’s revised average.

As of the last reading, the 4-week moving average was 266,250, the lowest level since April 2000 and far below the levels seen in the 2000s before the housing and financial crisis of 2008 and 2009.

Initial weekly unemployment claims spiked to over 650,000 on a 4-week moving average by early 2009, and have seen the sharpest and fastest fall since then to current levels. The ratio of weekly unemployment claims to the total population is at its lowest level since records began, although analysts still warn that the labor participation rate, which remains at its lowest point since the late 1970s, suggests the labor market retains some slack.

That slack remains key in predicting Janet Yellen’s decision to raise the Federal Funds target rate, which many analysts believe will be raised by 10 basis points or more in September. Other analysts argue that low wage growth and a slowdown in job creation, as job openings fell as of the most recent report, could urge Yellen to postpone a rate hike until December. A few market commentators believe the rate hike will not come until 2016.

Retail Sales

Retail sales rose by 0.6% from June to July on a seasonally adjusted basis, and rose 2.4% year-over-year in the same month. According to the Census Bureau, retail and food sales showed a strong gain, with total retail sales excluding gasoline purchases rising 0.6%. A fall in oil and gas prices has caused nominal spending on gas to fall in July.

The increase in sales was above expectations, with analysts expecting a 0.5% month-over-month increase with increased consumer spending driving the change. Some analysts warned that an increase would be significantly lower as retail prices failed to increase significantly due to a fall in commodity prices.

The actual rise in sales indicates solid continuing demand for goods and services in the United States, despite concerns that an international slowdown could encourage American consumers to slow down spending.

Market Reaction

Both equity and U.S. Treasury markets were mostly flat on the news, as many traders fretted over changes in the Chinese government’s target exchange rate for the yuan offsetting any tailwinds from improving conditions in the U.S. market. The U.S. dollar gained in early morning trading, erasing some of the losses suffered on Wednesday. The dollar remains over 5% above a basket of major world currencies for 2015, and is up over 16% from a year ago.