US data overnight continued to signal a record drop in Q2 growth ahead after Q1’s already weak -5.0% result (revised overnight from -4.8%). Durable goods orders—a leading indicator of capex—fell 17% in April and pending home sales fell 21% in April. Consensus is currently targeting a 32% drop (annualised) for Q2 growth, while the Atlanta Fed Nowcast points to -40.4%. The first look at US Q2 growth is not due until 30 July, hanging over our heads until then!

In the meantime, attention will focus on data looking beyond Q2. One of UBS’s favourite current indicators is railcar shipments which, after cratering through early April, is now showing signs of a turn-around. According to UBS, this suggests “that the industry with the greatest weakness—autos—is beginning to recover in May”. Another leading indicator is jobless claims. Last night, the weekly unemployment claims ‘eased’ to 2.12 million new lodgings. While this was broadly in line with expectations, it marked the eighth consecutive week that claims have fallen.

However, we frequently see quoted the fact that, since COVID-19 crunched through the US economy, there have been 40.7 million unemployment claims lodged. The current 14.7% unemployment rate in the US represents 23.1 million unemployed workers, so if we are heading to over 40 million, then that suggests the unemployment rate spikes to over 25%. This is unlikely because the sum of new claims is a flawed statistic.

What is important is not the sum of each week’s new claims, but the running total of ‘continuing claims’. Last night, this fell for the first week since the pandemic began from a record high of 24.9 million to 21.1 million (better than expected and below April’s unemployment level). This confirms that, despite still high weekly flows into unemployment, there is now an accelerating flow out of unemployment, which UBS suggests reflects both “re-employment” (likely helped by the US’s own ‘JobKeeper’-type program), as well as the easing of lockdown restrictions across a number of states.

Bottom-line, despite the two months we have to wait to see just how horrific Q2 GDP will be in the US (and elsewhere), evidence of the stabilisation in the US jobs market is already beginning to accumulate, consistent with a rebound in activity (even if moderate) in H2 2020.

Signs of improvement in the US jobs market accumulate

Source: Department of Labor, UBS.

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