U.S. Jobless Claims Fall to 289,000 New applications for unemployment benefits fell last week to this year’s second-lowest level, a new sign of an improving labor market.
Initial claims for unemployment benefits decreased by 14,000 to a seasonally adjusted 289,000 in the week ended August 2, the Labor Department said Thursday.
The four-week moving average of claims, which smooths out weekly volatility, decreased by 4,000 to 293,500. That marked the best four weeks of claims data since February 2006.
Thursday’s report showed the number of workers continuing to draw unemployment benefits fell by 24,000 to a seasonally adjusted 2.5 million in the week ended July 26. Those figures are reported with a one-week lag.
How Low Can Jobless Claims Go?
The two longest stretches of economic growth in the last half century were the booms in the 1980s and 1990s. And jobless claims today are now near the lowest levels reached in those historic expansions.
The decline in jobless claims is even more striking when the size of the workforce is taken into account. For most of the late 1980s the U.S. had under 100 million workers covered by the unemployment insurance program. Today, it’s more than 130 million. Unlike unemployment, which is a share of the workforce, jobless claims are a raw number, unadjusted for the growing workforce.
When the economy’s growing size is taken into account, jobless claims are not just at the lowest level of the year, or the lowest of the recovery. They’re near the lowest on record. By this measure, a further decline in jobless claims would put the U.S. labor market in truly uncharted territory. (…)
Note that job openings are back to their 2006 peak level:
Credit-Score Math Recalculated A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans.
Fair Isaac Corp. FICO -1.19% said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency. (…)
The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores. (…)
As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian. And of the 106.5 million consumers with a collection on their report, 9.4 million had no balance—and won’t be penalized under the new credit-score system. (…)
Some experts said the new model for FICO scores walks a fine line: It loosens standards without overstating the creditworthiness of borrowers. Fair Isaac said it ran studies to determine how likely borrowers are to repay their debts if they had a stellar credit record with the exception of such collections. (…)
Fair Isaac will begin rolling out the new scoring model, named FICO 9, to credit bureaus this fall and to lenders later this year.
Fair Isaac releases new scoring models every few years, and it is up to lenders to choose which ones to use. The new score will likely be adopted by credit-card and auto lenders first, says John Ulzheimer, president of consumer education at CreditSesame.com and a former Fair Isaac manager.
Mortgages are likely to lag, since the FICO scores used by most mortgage lenders are two versions old. (…)
More than half of all debt-collection activity on consumers’ credit reports comes from medical bills, according to the Federal Reserve. Such activity results in lower credit scores for consumers, meaning that lenders are more likely to be cautious in extending credit.
The number of U.S. consumers struggling with medical debt has been surging. As of 2012, 41% of U.S. adults, or 75 million people, had trouble paying medical bills, up from 58 million in 2005, according to a report released last year by the Commonwealth Fund. (…)
Consumer Borrowing Posts Slower Growth in June Consumer borrowing outside of mortgages climbed at the weakest rate in four months in June, raising questions about Americans’ confidence and economic well-being.
Americans’ total outstanding debt—excluding home loans–rose at a 6.48% annual rate in June from a month earlier to $3.21 trillion, the Federal Reserve said Thursday. That marked the slowest rise since February. (…) Consumer debt rose at a 7.8% pace in the second quarter after climbing 6.7% in the first three months of the year. (…)
Credit-card use eased in particular in June. Revolving credit, reflecting total credit-card balances, climbed at a 1.3% pace in June after rising 2.4% in May and 12.3% in April.
Non-revolving credit—generally auto loans and student loans–increased at a 8.43% rate in June, a solid gain but down from the prior month’s 9.32% increase. Many Americans have been replacing aging cars after holding off such purchases during the recession and early in the recovery. Student debt also has grown as Americans rely less on savings to cover college and graduate-school costs. (Chart from Haver Analytics)
U.S. Small-Business Owners’ Optimism Continues Slow Rise
Hotels: Occupancy up 4.5%, RevPAR up 11.0% Year-over-Year
Right now it looks like 2014 will be the best year since 2000 for hotels. (CalculatedRisk)
Federal Reserve finds US households are unwell
The Federal Reserve has just released its first “Report on the Economic Well-Being of U.S. Households“. It provides some useful context for the ongoing debates about the income distribution and excess savings.
A few particularly dispiriting highlights:
- Among Americans aged 18-59, only a third had sufficient emergency savings to cover three months of expenses.
- Only 48 per cent of Americans could come up with $400 on short notice without borrowing money or sell something.
- 45 per cent of Americans save none of their income.
The insufficient savings of many older Americans helps explain why the labor force participation rates of people aged 55 and older has steadily increased over the past quarter-century even as the labor force participation rates of those aged 25-54 has fallen over the same period.
Another interesting tidbit regards the impact of student debt: 44 per cent of people with outstanding education burdens “reported avoiding medical treatment because they could not afford it, compared with 30 percent of people without student loans.” This seems to corroborate the intuition that excessive borrowing for degree programs of dubious value could depress consumption among a subset of the population for many years. (Whether this would have significant macro impact is less obvious. See Cardiff’s post from June.)
Amusingly, the National Association of Realtors, which regularly publishes a Housing Affordability Index, does not consider down payments when calculating the cost of housing, only home prices and mortgage rates. (Tip of the hat to the WSJ’s Josh Zumbrun for catching that.) The renewed cautiousness of lenders regarding down payment requirements may help explain why the Fed’s efforts to goose the housing market by lowering borrowing costs haven’t been as successful as some might have predicted a few years back.
China Exports Surge China’s exports surged while imports fell in July. The news was largely welcome in an economy that has been struggling to regain momentum, but negative import growth highlights continued weak domestic demand.
According to figures released by the General Administration of Customs on Friday, exports expanded 14.5% year-over-year, nearly double the 8% growth forecast by 15 economists in a Wall Street Journal survey and a sharp increase from the 7.2% year-over-year increase recorded in June.
Imports, meanwhile, fell 1.6% during the same period, following a 5.5% on-year expansion in June. The survey predicted a 3% rise.
Strong exports—fueled by double-digit growth to the U.S., the EU, Southeast Asia and Hong Kong—dovetailed with similar strong export growth for Taiwan and South Korea, as those economies order more Chinese components for use in their own export industries, analysts said.
France’s Slow Growth to Continue
France’s economy will grow 0.2% in the third quarter from the second, the Bank of France said in its monthly business climate survey. That follows the same quarterly expansion in the second quarter, according to the central bank’s previous survey.
Eurozone recovery on track, says Draghi
Mr Draghi acknowledged that eurozone momentum had weakened in the second quarter and a rise in political tensions would inflict more damage. But he maintained that a weak recovery would continue and longer-term inflation expectations remained anchored to the central bank’s target of below but near 2 per cent.
The ECB president urged governments to boost the recovery, blaming a lack of labour market reform and excessive business regulations in Italy for the eurozone’s third-biggest economy returning to recession. Mr Draghi also countered calls from François Hollande, France’s president, for more central bank action, saying it would do little unless Paris tackled structural economic flaws.
OPEC July Output at Highest for Five Months
In its monthly oil market report, the Organization of the Petroleum Exporting Countries said Libya’s production rose by 200,000 barrels a day last month, bolstering the group’s output by 167,000 barrels a day to total 29.9 million barrels a day. (…)
However, despite last month’s uptick, ongoing turmoil in the country has dented hopes of further improvements in its level of oil production.(…)
Meanwhile a deterioration of the security situation in Iraq has for months shut in production in the country’s north. Although the bulk of the country’s oil fields in the south have so far remained safe, concerns have risen this week about the semiautonomous region of Kurdistan.
“Until recently, OPEC’s hopes were pinned particularly on Iraq, as it was to shoulder two-thirds of the oil cartel’s future production increases. However, the country is now sliding increasingly into chaos,” analysts at Commerzbank CBK.XE -1.00% said in a note. (…)
Crude oil rises as Obama authorises air strikes Afren first oil group to partially suspend operations in northern Iraq
EARNINGS WATCH
We now have 91% of the S&P 500’s market cap (433 companies) in and EPS is on track to rise 9.2% Y/Y according to RBC Capital. Earnings ex-Financials have surprised by 4.1% so far. Revenues have beaten by 1.4%.
S&P should update its database this weekend. I should thus be able to update the official scorecard next Monday.
SENTIMENT WATCH
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Markets Gripped by Political, Growth Fears There was no relief in the pressure on financial markets, with news that the U.S. has authorized airstrikes in Iraq compounding worries over an escalating trade war between Russia and the West.
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U.S. Stock Funds See Biggest Outflows Since February
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Junk-Bond Exodus Accelerates
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Bears Come Out of Hibernation Bad-news bears are back. A confluence of negative events and a bad week in the stock market prompted a big spike in bearish sentiment, according to the latest survey from the American Association of Individual Investors.
Bearish sentiment, or the expectation that stock prices will fall over the next six months, spiked seven percentage points to 38.2% in this week’s survey conducted by the American Association of Individual Investors. That represents the highest mark of the year and a level last seen in August 2013. AAII releases the results of its Internet survey—which asks its members to register their bullish, bearish or neutral views—early each Thursday.
Bullish sentiment came in at 30.9%, marking only the second time in 2014 that bears have exceeded bulls in this particular survey.
With bullish sentiment now exceeding bullish sentiment by 7.34 percentage points, this is only the second time this year that bears have outnumbered bulls. (Bespoke Investment)
Unfortunately, the AAII sentiment data is not the most useful (see INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL!). The II survey is somewhat better on the bullish signals but we are far from there as this Yardeni chart shows:
More bears are needed! BTW: