More green shoots of recovery sprouted in the US labour market, according to the latest data, while the slumping factory sector showed dramatic signs of improvement and a gauge of the overall economy also jumped. The number of US workers filing new claims for jobless benefits rose last week but the number of people staying on the benefit rolls after collecting an initial week of aid fell for the first time since January, a government report showed.
Manufacturing in the US Mid-Atlantic area contracted in June for the ninth consecutive month but much less severely than expected and far less than in the previous month, a regional Federal Reserve survey showed. Indeed, the reading on the Philadelphia Federal Reserve business activity index was the highest since September 2008, while further evidence that the recession is fading came from the Conference Board's forward-looking measure of the US economy, which posted its biggest increase in five years in May.
The question is whether the worst recession in decades has truly run its course or simply moderating to a lower level of misery. "I think when you take a look at the numbers it clearly is an improvement going on," said Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania. "Now the question is do we get back to the growth stage or whether this is just a rebound from the negativity that we've seen over the past year?"
On Wall Street, stocks added to their gains after the surprisingly strong Philly Fed and Conference Board reports. US government bond prices, which benefit more from signs of economic weakness, added to earlier losses. Initial claims for state unemployment insurance rose 3,000 to a higher-than-expected 608,000, the Labour Department said. Analysts polled by Reuters were expecting claims to dip to 600,000 from a previously reported 601,000.
That was practically the only bad news in the day's numbers. In the same weekly jobs report, continued claims tumbled 148,000 to a smaller-than-anticipated 6.69 million in the week to June 6, the latest week for which data is available. It was the lowest since May 9, and the largest one-week drop since November 2001.
In another sign labour market weakness may be easing, the 4-week moving average for new claims, considered a better gauge of underlying trends as it smooths out week-to-week volatility, dipped to 615,750, the lowest since February 14. The Philadelphia Fed said its business activity index rose sharply to minus 2.2 in June from minus 22.6 in May.
That was well above economists' expectations of minus 17, based on the median of forecasts in a Reuters poll and above even the highest of estimates, which topped out at minus 6. A reading below zero indicates contraction in the region's manufacturing sector, but there was vast improvement throughout the report.
New orders, a measure of future business, also hit their highest since September and the employment gauge hit its highest since November. The Conference Board's index of leading indicators suggested economic improvement was more than a regional story.
The index, which is supposed to forecast economic trends six to nine months ahead, rose 1.2 percent in May after a revised 1.1 percent increase in April. The increase was the second consecutive rise and the largest since a 1.4 percent jump in March 2004. "The recession is losing steam," said Ken Goldstein, a Conference Board economist. "Confidence is rebuilding and financial market volatility is abating."
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