The latest US labor report came out and we can all breathe easier now.

Or can we?

Last week, the number of Americans filing for unemployment benefits unexpectedly fell, pointing to sustained strength in the labor market.

The US Labor Department on Thursday reported that initial claims for state unemployment benefits declined 4,000 to a seasonally adjusted 264,000 for the week ended June 4. This fell below the consensus of economists who expected the number to rise to 270,000.

This was a welcome bit of news after last week’s clustermunch.

Last week, the Labor Department reported that in May US companies hired at the slowest pace in more than five years. The 38,000 increase in May nonfarm payrolls was the weakest performance since September 2010 and fell far short of the 158,000 increase expected by the economists.

Well, this just sent the world into a tizzy. The immediate conclusion was if employers aren’t hiring as much, then the economy must be in decline. And quite few, such as Morgan Stanley, even whispered the R-word (recession).

But on Thursday, everything was well with the world again.

“The hand-wringing over the May jobs report may be misplaced,” Joel Naroff, chief economist at Economic Advisors in Holland, Pennsylvania, told Reuters.

Despite, last month’s hiring slowdown, Thursday’s report said unemployment claims fell by 30,000 since surging to 294,000 in early May. They have now been below 300,000 for 66 straight weeks, the longest streak since 1973.

A better labor market measure, the four-week moving average of claims, fell 7,500 to 269,500 last week. In addition, a report on Wednesday showed job openings hitting a nine-month high in April and layoffs falling to their lowest level since September 2014.
Thursday also saw the US Commerce Department report that wholesale inventories recorded their biggest increase in 10 months in April. This pointed to growth in the second quarter. Wholesale inventories rose 0.6%, the biggest gain since June last year, after rising 0.2% in March.

But Asia Unhedged would like to ask you to pause for a second and look behind the headlines.

First comes this quote from the same story about the inventory increase.

“While the stronger inventory data should boost growth in the first and second quarters relative to what we previously had been expecting, it also should be more of a headwind for growth in the future,” Daniel Silver, an economist at JPMorgan told Reuters.
Inventories have been a drag on gross domestic product growth since the third quarter of 2015.

In addition, while today’s unemployment report is a positive, quite a few negative economic reports have been released recently. April was the worst month for US imports year over year since 2008, May saw the worst year-over-year drop in auto sales, and investment indicators have continued to be terrible, especially non-defense capital goods and nonresidential construction.

However, before the unemployment claims, the one anomaly was the big April retail sales print and the big consumer credit number. Seasonally adjusted the net change in revolving credit was one of the largest on record.

While this may look like an indication of the consumer’s willingness to spend — a key component for economic growth — not so fast.

David Goldman, our esteemed colleague at the Asia Times, has noted “A closer look at the data, though, show the opposite: during the past couple of years consumers have reduced revolving debt as the labor force expanded and increased it as they were forced into part-time jobs. Burger flipping and bedpan jobs are on the upswing. In other words, credit cards have been less an instrument for discretionary spending than a reserve in case of hard times.”

Thus, Goldman concludes, “It seems more likely in light of the downward revisions of payroll in the past couple of months that the increase in revolving credit reflected worsening economic conditions, not better.”

Adding a little more fuel to the fire, Netherlands CRB just released its March World Trade Monitor. It said the US had the weakness import performance since 2008-2009 and the weakest in the world.

Let it not be said that Asia Unhedged wants a recession. We’ve been bullish to the point of embarrassment. But, we’ve also learned that you can get blindsided if you never take off the rose-colored glasses. All we’re saying is “be careful out there.”

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