U.S. Macro Flash:Initial Claims -26K in First Week of Seasonal Distortions, Still Lower than Expecte

Initial claims for unemployment insurance plunged 26,000, to 350,000, ithe weekending July 7, the usual start of a period of weekly volatility related to the variabletiming of seasonal auto-industry shutdowns.

    Claims data iJuly need to be heavily discounted, but nonetheless, claims wereslightly lower thaCiti’s well-below consensus forecast of 355,000 and consensusof 373,000. The sharp weekly drop should reverse quickly. Yet fundamentally,some automakers planned fewer thausual shutdowns iJuly. Publishedproductioschedules for the month suggest a seasonally adjusted increase invehicle assemblies of more tha5%.

    The U.S. vehicle assembly pace is slowing along with sales after a near 30% surgeover the past year, but the now lower level of employment ithe auto industrycoupled with solid productioplans could suggest more of aimprovement iJulyclaims data oaverage thaa drag.

    Other very high frequency data show mild softening ithe early days of July, but nosevere trend changes. Consumer sentiment continues to gradually decline. Alreadysoft chaistore sales measures improved slightly ithe first week of July. (Thesedata rise iimportance whemore reliable hard data are questioned as out of date.)Import prices fell a larger-than-expected 2.7% iJune with the index ex-fuels off0.3%. These were larger thaexpected declines. While the large energy pricedeclines have not extended into July, price drops provided a large windfall forconsumers to rebuild savings ithe past two months.