The economic data for 2017 is off to a flying start, as Thursday gave us a continuation of the solid employment and business activity data that we got on Wednesday. What's better now though is that Thursday's batch of data is even more relevant since it covers mostly January data.
For starters, we got another stellar week of unemployment claims data. This week's reading of 234,000 was last matched on Oct. 28, 1972, when the labor force was half the size it is today! Should claims start to drift down below the 230,000 mark, we will enter readings that have not been seen since the 1960s. Given what we have for job openings as reported in JOLTS, it's likely that claims will indeed grind lower to those levels.
Weekly claims have been a stalwart of economic data throughout this cycle and they keep telling us that the labor market is strong and continues to tighten. While future inflation and Fed policy implications of persistently low claims data could certainly lead to higher rates as we are already seeing happen in the bond market, this is a welcome occurrence. This is all part of the normalization process and the market is taking it in stride. The bottom line is that we've had bull markets with significantly higher rates before, and it will happen again. The truth is, having people working is always a good thing -- the rest is academic.
Moving on to business activity data, we had the highly regarded Philadelphia Fed Manufacturing Business Outlook Survey which came in well ahead of expectations at 23.6 versus last month's solid 19.7 (23.6 represents the percentage of firms reporting an increase in activity over the amount reporting a decrease). Seven of 10 of the index components came in better than last month's levels, with new orders and prices received showing the best gains. To put the new orders component in context, since 2000 it has averaged just 7.6 even after backing out the negative years of the crisis. We just hit 26.
**Survey data was collected up to Jan. 17**
Looking at the chart above, we can see that new orders and general activity are at levels that coincide with previous strong economies and bull markets. Also of note in the report was that the prices received component hit its highest level since July 2008, showing that inflation is indeed picking up. Again, inflation picking up is a welcome and natural occurrence as it's a function of a properly working economy. The Philly Fed data is a continuation of the strong regional Fed data that we got in December and is something that could really accelerate under the new administration.
So far this morning, futures are up as we await the inauguration and the beginning of a new era for America. It'll be great for markets to have this event behind us, so that we can get back to focusing on things that matter, like earnings and economic data.