Jobless Claims Healthy, Manufacturing Mixed, Foreign Security Purchases Fall, Capacity Utilization Declines, Prices Paid Falls

- Initial Jobless Claims for last week fell to 295K versus estimates of 320K and 303K the prior week.
- Continuing Claims rose to 2425K versus estimates of 2425K and 2410K prior.
- Empire Manufacturing for June rose to 29.0 versus estimates of 11.0 and a reading of 12.9 in May.
- Net Foreign Security Purchases for April fell to $46.7B versus estimates of $60.0B and $70.4B in March.
- Industrial Production for May fell .1% versus estimates of a .2% rise and a .8% gain in April.
- Capacity Utilization for May fell too 81.7% versus estimates of 81.9% and 81.9% in April.
- The Philly Fed Index for June fell to 13.1 versus estimates of 11.0 and a reading of 14.4 in May.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week to a four-month low, evidence the labor market is holding up as the economy slows, Bloomberg said. The four-week moving average fell to 315,750 from 328,000 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained at 1.9%. This report adds to mounting evidence that the economy is not slowing too much. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Manufacturing growth in NY state unexpectedly accelerated this month, Bloomberg reported. The outlook component of the index increased to 33.7 versus 30.2 the prior month. The new orders component surged to 25.8 versus 16.2 in May. The prices paid component rose to 52.9 from 43.1 the prior month. The employment component declined to 5.1 from 9.7 in May. I continue to believe manufacturing is in the process of slowing to more average levels.

International investors slowed purchases of US securities in April, Bloomberg reported. Foreign purchases of US stocks slowed to $6.5 billion from $19 billion the prior month. I expect foreign demand for US assets to surge in May on a flight to quality, relative strength in US stocks and a rising dollar.

Industrial Production in the US unexpectedly fell last month for the first time since January as the economy began to slow, Bloomberg reported. Production of consumer durable goods, which include automobiles, furniture and electronics, fell .8% versus a .4% fall the prior month. Capacity Utilization is now slightly above the long-term average of 80.7%. I expect factory production and capacity utilization to continue to head lower, back to average levels, over the intermediate-term.

Manufacturers in the Philly area expanded at a slower pace in response to higher energy prices and cooling demand, Bloomberg said. The new orders component of the index rose to 17.7 this month from 2.7 the prior month. The prices paid component fell to 48.7 from 55.3 the prior month and 66.7 in October of 2005. The employment component of the index rose to 6.8 versus 1.1 in May. I continue to believe manufacturing is in the process of slowing to more average rates. Prices paid have most likely peaked for this cycle.