Yesterday, we saw some notable declines in US jobless claims and the ISM services PMI. Initial claims remain largely stable around their cycle lows and within the 200K to 250K range that has been established since 2022.
This suggests that layoffs are not accelerating and are remaining at low levels, which we also saw in the US job openings report (although it does not include the latest rise in claims). I don’t think the market will be too concerned about initial claims until we see a new high in the cycle.
Initial US claims
On the other hand, continuing claims have been rising steadily in recent weeks and recently hit a cycle high. This has been the trend for some time as the labor market continues to rebalance with fewer jobs available rather than more layoffs. However, this is something to watch at this point in the cycle.
Continuing demands of the United States
The US services PMI missed expectations by a wide margin, coming in at 48.8, well below the lowest estimate. However, the survey has been unreliable and volatile lately. Just 15 minutes before the release, we got the final reading of the US services PMI from S&P Global and it showed a better picture than the initial print.
That’s a huge discrepancy, and apart from the construction of the surveys, I don’t know what might be the cause. The only two notable things in the ISM report were the headline number hitting a new cycle low and the new orders index falling into contraction for the first time since 2022.
Of course, we shouldn’t dismiss the ISM report entirely, but it’s hard to trust. Moreover, one bad reading doesn’t make a trend, and we’ve already seen it fall to 49.4 in April before jumping back to 53.8 in May.
US ISM Services PMI
The market seemed to interpret the data in the same way as interest rate expectations remained largely unchanged with rates set to fall by 47.8 basis points by year-end. Overall, the data reinforced the view that the contractionary trend is likely to continue and that there is a much higher chance of the Fed cutting rates twice this year than not cutting at all or even raising them.