Jobless claims hold in narrow path

Weekly jobless claims fell 1,000 in the latest week to 428,000 and have now held in a very narrow range – 420,000 to 430,000 for six consecutive weeks. As a result, the 4-week moving average barely moved, rising by just 500 to 426,750.



The lack of any significant upward are downward movement in jobless claims, following a brief dip earlier in the year below 400,000, is telling us that the economy continues to slowly improve.

Based on the release as well as recent trends, no new recession is on the horizon but any pick up in economic growth is unlikely, either.

Simply put jobless claims are still elevated, underscoring the uncertainty many of us feel regarding what’s happening in the economy.

Despite the lack of any signs of an acceleration in economic activity, the Chicago Purchasing Managers Index, which looks at manufacturing activity in the Midwest, unexpectedly rose in the latest month.



A possible pick up in auto production tied to an easing of the supply chain disruption from Japan that followed the tragic earthquake that hit the nation earlier in the year might explain the welcome rise in the index.

Both production and new orders surged, while inventories tumbled.  Unfortunately, prices paid eased slightly but remained at a worrisome level, which is somewhat surprising given the recent fall in commodity prices.

Nonetheless, the Chicago PMI tends to be a rather volatile index, and other measures of regional manufacturing have slowed significantly.

We’ll get a better read when the ISM Manufacturing Index is released on Friday.

Chicago PMI reflects red-hot manufacturing sector

As the recovery begins to broaden, manufacturers, which helped to stabilize and pull the economy out of the worst recession since the 1930s, continue to expand at an ever-quickening pace, at least according to the Chicago Purchasing Managers’ survey.

The Chicago PMI, increased from 68.8 in December to 71.2 in January, the highest reading since July 1988.  A reading of 50 suggests manufacturing is neither expanding nor contracting.



Even better, new orders – a proxy for future activity – edged up from 75.7 to 75.9, the best reading since December 1983!  Meanwhile, production grew by 5.5 points to the torrid pace of 78.2, and employment, which eased from a 27-year high, remained favorable.

However, the fast-paced expansion in manufacturing has not been without some problems, as growth continues to boost prices at the early stages of production and crimp profit margins.

The Chicago PMI, which looks at manufacturing in the Midwest, tends to be a bit more volatile than the closely-followed ISM Manufacturing Index, which measures production on a national level.

Still, a reading of over 70 is loudly suggesting that manufacturing is firing on all cylinders, and components within the index are signaling the all-clear sign in the short term.

Strong Chicago PMI, drop in jobless claims below 400,000 point to upbeat start to 2011

The Chicago PMI, which measure activity among manufacturers in the Midwest, jumped from 62.5 in November to 68.6 in December, the best showing since July 1988 and the fourth month in a row the survey detected accelerating activity.

A reading of 50 suggests manufacturing activity in the region is neither expanding nor contracting.



Adding to the very strong report, production and new orders, which rose to a very impressive 74.0 and 73.6, respectively, now stand at their highest levels in over five years, while order backlogged are surging.

Further, employment also touched a five year high, while prices paid increased from 70.7 to 78.2, signaling that manufacturers are being forced to paid higher prices for raw materials amid improving worldwide demand.

Comments from some of those survey also paint a brighter 2011 and include :

1. 2010 was a very, very good year, 2011 looks just as strong thru Q1! 
2. The level of business keeps increasing and the resources to handle are not available.
3. Our backlog is increasing. Supplier lead times are still too long.
4. Employee turnover is starting to increase, this along with continued downsizing and increased outsourcing is driving consultant hiring.
5. Lending market slowly thawing but only for strong (financially) borrowers. Weak borrowers are still finding it nearly impossible to find a competitive source of reliable funding.

No doubt about it, the Chicago PMI tends to be a bit volatile when compared to the ISM Manufacturing Index, which takes a snapshot of the national picture.  But with the Philly Fed Business Activity Index reaching a six-year high in December, along with strong numbers from Chicago, it looks as if manufacturing is growing nicely and is set to support the broadening recovery.

Jobless claims finally tumbled below 400,000

In the meantime, weekly initial jobless claims fell a steep 34,000 to 388,000, the best reading since July 2008.  The 4-week moving average dropped a sizable 12,500 to 414,000.  I provide details at Examiner.com.



Difficulties in adjusting for seasonality, especially during the year-end holidays, may be responsible for the unexpectedly large decline; however, Bloomberg News reported that the Labor Department believes the data are good, and it was able to accurately adjust for seasonal variations.

If this proves to be true, then the drop below 400,000 is significant and is one of the strongest signals yet that economic activity is picking up.  Moreover, it suggest that an improving labor market may not be far behind.

Consequently, the new year may finally offer some much needed economic relief to the many who grew weary of the recession and the slow recovery long ago.