The number of Americans filing applications for unemployment benefits increased moderately last week, pointing to still strong labour market conditions despite signs that economic activity was slowing. Other data on Thursday showed factory activity in the mid-Atlantic region rebounded sharply in July, reaching its highest level in a year. That added to recent surveys on manufacturing that have suggested the struggling sector was stabilizing.
The improvement in the regional factory surveys likely reflects a decision by President Donald Trump not to impose tariffs on Mexican goods after the two countries struck a deal on immigration. But manufacturing, which makes up about 12% of the economy, remains hamstrung by weaker business spending on equipment, an inventory glut, a bitter trade war between the United States and China, and softening global growth.
"This big swing in the data over the past couple of months may reflect changing attitudes on trade given that the sampling for the June reports probably occurred around the time of peak concern about trade policy between the US and Mexico," said Daniel Silver, an economist at J.P Morgan in New York.
Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 216,000 for the week ended July 13, the Labour Department said, remaining in the middle of their 193,000-230,000 range for this year. Last week's increase in claims was in line with economists' expectations.
The claims data tends to be volatile around this time of the year because of summer factory closures, especially in the automobile industry, which occur at different periods. This can throw off the model the government uses to strip out seasonal fluctuations from the data.
Layoffs remain low despite the US-China trade tensions, which have contributed to a dimming of the economy's outlook and led the Federal Reserve to signal it would cut interest rates at its July 30-31 meeting for the first time in a decade. Last week's claims data covered the survey period for the nonfarm payrolls component of July's employment report. Claims were little changed between the June and July survey periods, suggesting strong job growth this month. The economy created 224,000 jobs in June.
There are, however, concerns that a shortage of workers and the Trump administration's tougher stance on immigration could impede job growth. The Fed's Beige Book report of anecdotal information on business activity collected from contacts nationwide published on Wednesday showed some manufacturing and information technology firms in the Northeast reduced their number of workers from mid-May through early July.
It said "a few reports highlighted concerns about securing and renewing work visas, flagging this as a source of uncertainty for continued employment growth." Solid job growth is helping to underpin the economy, which is slowing as last year's massive stimulus from tax cuts and more government spending fades. Weak manufacturing and housing, as well as a widening trade deficit are partially offsetting strong consumer spending.
The Atlanta Fed is forecasting gross domestic product rising at a 1.6% annualized rate in the second quarter. The economy grew at a 3.1% pace in the January-March period. The slowdown in activity was underscored by a second report on Thursday from the Conference Board showing its measure of future economic growth fell for the first time in six months in June. The 0.3% drop in the leading indicator, the largest since January 2016, "suggests growth is likely to remain slow in the second half of the year," the Conference Board said.
But manufacturing appears to be improving. In a third report, the Philadelphia Fed said its business conditions index jumped to a reading of 21.8 in July from 0.3 in June. That was the highest level since July 2018 and reflected strong increases in measures of new orders, employment and shipments. The improvement in manufacturing in the region that covers eastern Pennsylvania, southern New Jersey and Delaware mirrors other measures on factory activity.
It probably overstates the outlook for manufacturing, however. A survey from the New York Fed on Monday showed a mild rebound in its business conditions index in July after contracting in June. While overall manufacturing production increased last month, output at factories fell at a 2.2% annual rate in the second quarter, the sharpest decline in three years, the Fed reported on Tuesday. Manufacturing production dropped at a 1.9% pace in the first quarter.
The Philadelphia Fed survey's measure of prices received by manufacturers in the mid-Atlantic region increased this month, as did a gauge of prices paid by factories. Both measures, however, remained well below their lofty readings over the past few month, consistent with expectations of moderate inflation. The survey's six-month business conditions index jumped to a reading of 38.0 this month, the highest reading since May 2018, from 21.4 in June. Its six-month capital expenditures index increased to 36.9 from a reading of 28.0 in the prior month.
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