Today's US data caused some risk aversion in US stock markets and in oil prices, as both fell to open the NY session. The main reason being a larger than expected increase in weekly jobless claims data as well as a sharply lower than expected Philadelphia Fed Manufacturing index. In other data, we saw consumer inflation continue to be tame, with the headline rate declining in May by 0.2%, the 1st quarter current account balance posting a smaller than expected deficit, and a measure of leading indicators posting a 0.4% gain for May.

What we got from today's data is that the recovery is intact but that the pace of the expansion in may be cooling. With weak pressure from prices and a weak labor market, the Fed will continue to keep rates at low levels to support the recovery.

Overall, the news at the NY open and the subsequent move in stocks dented the sense of risk appetite seen in overnight trading, but did not completely reverse it.

Let's dive in and break down today's data.

US Jobless Claims for Week Ending June 12

Jobless claims rose by 12K to 472K, a figure that was a one-month high and indicates that the recovery in the US labor market will continue to be slow as firings stay elevated despite growth in the US economy. Today's data was especially disappointing as it missed forecasts of a decline in claims to 452K.

jobless-claims-jun-12

Following a downward trend in jobless claims throughout most of 2009, jobless claims have hovered in the 450K-480K range the past 5 months. The 4-week moving average, which smooths out the headline figure has also been trending up. Economists see a move below 450K and even 400K as an important step to actually seeing a  labor market consistent with a declining unemployment rate.

Consumer Prices for May

Consumer inflation remained weak, with the headline rate declining 0.2% on the month in May. That matched expectations. The decline was led by lower energy prices, something we saw from producer and import price data earlier this week. Excluding energy and food prices, the CPI rose a tepid 0.14%.

May's inflation reports (CPI, PPI, IPI) show that inflation does not pose a problem for the Fed and gives it leeway to keep rates at their record lows in order to stimulate the economy.

US Philly Fed Manufacturing Index for June

The Philly Fed index may have been the most direct reason for the burst of risk aversion to start NY trading. It posted a reading of 8 in June from 21.4 in May when forecasts called for it to post a 21.1.

philly-jun-breakdown

Looking at a breakdown of the survey's results we see that the employment index went into negative territory, the first time it has done so in 7 months. While new orders and shipments remained around their levels from the May index, the 6-month outlook for those readings did take a step back. Also prices received and paid in the current conditions were weaker.

The Philadelphia Fed index, similar to the Empire Manufacturing index, is a leading indicators for manufacturing. With US economic data uneven of late and with considerable uncertainty regarding what the troubles in the Euro-zone will mean for growth in the US, the report may take on more significance. The weak release therefore may herald weaker activity ahead.

Conference Board Index of Leading Indicators Rises in May

A measure of leading indicators, put out by the Conference Board, matched expectations of a 0.4% increase. The index tries to gauge the outlook for growth over the next three to six months. Five of the 10 components contributed to the May increase including the spread on the yield between 10-year Treasuries and the Fed target rate for short-term interest loans between banks, as well as increases in money supply and longer factory workweek. Five of the components, including falling stocks prices and building permits, declined.

Current Account for 1st Quarter

The us current account gap grew less rapidly than expected, an encouraging sign when concerns about debt are a driving factor in financial markets. In the 1st quarter the US posted a current account deficit of $109.0B, or 3% of GDP, when forecasts had it rising $120.7B. Also, the 4th quarter figures were revised to show a deficit of $100.9B from the originally reported $115.6B.  The data shows that the US can still comfortably fund its debts at present, which hopefully gives enough time for the US to trim its spending before the system is strained by the retirement of baby-boomers.