Initial Jobless Claims remain disappointingly elevated, totaling 472k on the week, 22k above expectations, up from 460k last week and at a 5 week high. After falling a sharp 234k last week, Continuing Claims rose by 88k, 71k above forecasts. Extended Benefits though fell by a net 169k but without the extension of unemployment insurance from Congress, many are exhausting their benefits. Some however are definitely finding new jobs but the pace is still slow. Looking forward over the next few months we must keep an eye on what influence the Gulf of Mexico disaster will have on jobs but it doesn’t seem to have been an impact in this report as the states leading the rise were not down south.
May CPI was down .2% m/o/m but up .1% at the core, both in line with expectations. Outside of a 2.9% decline in energy prices and a flat reading for food keeping a lid on headline inflation, Owners Equivalent Rent (25% of overall CPI) was flat and hasn’t risen since Aug ’09. This component looking forward though will be key to as with the end of the home buying tax credit reducing the impetus to buy a home, renting may become more attractive again and the drag to inflation seen in this component over the past yr may reverse. Lifting core inflation was a .4% rise in apparel as cotton prices at 14 year highs is seeping into the finished product. Vehicle prices rose .3% and medical care was up .1%. Medical care will also be a key focus as we see the upcoming impact from Obamacare. Net-net, the benign CPI will give the Fed the belief they have more license to continue to keep rates at zero even though headline inflation is up 2% y/o/y.