Decline in Business Equipment Spending Signals Economic Cooling

First-time applications for U.S. unemployment benefits fell by 6,000 last week, but the number of people on jobless rolls surged to a 2-1/2 year high in mid-June, signaling easing labor market conditions amid slowing economic growth. The data, combined with a decline in business spending on equipment and a widening goods trade deficit, adds to the evidence of a cooling economy, raising the likelihood of the Federal Reserve cutting interest rates in September. Retail sales were tepid in May, and inflation pressures eased significantly, indicating a potential soft landing for the U.S. economy. Initial claims for state unemployment benefits dropped to a seasonally adjusted 233,000 for the week ended June 22. However, continuing claims increased by 18,000 to 1.839 million, the highest since late November 2021. The volatility in claims data is expected to persist around public holidays and due to annual retooling by automobile manufacturers. Meanwhile, a change in policy in Minnesota, allowing non-teaching educational staff to claim benefits during the summer, contributed to the elevated continuing claims. Market Overview:

• U.S. weekly jobless claims fall, but continuing claims rise.
• Core capital goods orders drop, indicating declining business spending.
• Goods trade deficit widens as exports decline.

Key Points:

• Initial jobless claims drop to 233,000; continuing claims hit a 2-1/2 year high.
• Core capital goods orders decline by 0.6% in May.
• Goods trade deficit increases by 2.7%, with a rise in inventories.
Looking Ahead:
• Monitoring labor market conditions for further signs of easing.
• Evaluating the impact of business equipment spending and trade deficit on GDP.
• Anticipating potential Fed rate cuts in response to economic slowdown.
The Commerce Department confirmed a sharp slowdown in economic growth in the first quarter, with GDP revised slightly upward to a 1.4% annualized rate from the previously estimated 1.3%. Business and government spending improvements offset the downgrade in consumer spending. Despite the slowdown, economists do not foresee an imminent recession, with expectations of a modest GDP growth rate of 1.8% in the second quarter, aligning with the Fed’s non-inflationary growth target. The labor market's health remains a key factor for the Fed’s policy decisions. Although the jobless rate rose to 4.0% in May, economists believe the increase is concentrated among specific demographics and industries, posing no immediate danger to the labor market. However, the decline in business equipment spending and the widening trade deficit suggest economic challenges ahead. Core capital goods orders and from higher interest rates and softening demand. The goods trade deficit widened as exports declined, potentially dragging on GDP growth.