Economic Data No Big Surprise As Incomes Rise

Thursday morning, markets received a large flood of economic data from the U.S. that was largely in line with expectations. Jobless claims fell from last week while spending and incomes rose in May.

Jobless Claims Drop

Initial jobless claims for the week ended June 21 fell to 346 thousand from an upwardly revised 355 thousand last week. Economists expected jobless claims to fall to 345 thousand in the week.

The 4-week moving average of claims, a measure largely correlated with the monthly non-farm payrolls report (as the 4-week moving average falls, non-farm payrolls rise), fell to 345.75 thousand last week from 348.5 thousand the week before. The moving average is back where it was two weeks ago, implying little improvement in the labor market over the past two months and for June from May.

Personal Income and Outlays

Meanwhile, incomes and consumption bounced back in May after a weak showing April new data released Thursday showed. The report coincided with the release of many people's tax returns in the month which could have played a part in the jump.

For the month of May, personal outlays, known otherwise as consumer spending, rose 0.3 percent, in line with expectations. April's reading was also revised higher in the report to show a contraction in spending from March of 0.2 percent vs. the prior estimate of a 0.3 percent decline.

Meanwhile, incomes posted a large boost in May as both nominal and disposable incomes rose 0.5 percent in May vs. the expected rise of only 0.2 percent. The prior reading was also raised from flat to 0.1 percent in the month, showing consistent improvement in incomes across the country.

Inflation Remains Low

The latest look at inflation also remained low in the report, a key sign that the Fed could remain accommodative longer than expected. The PCE Inflation measure, a favorite of Chairman Bernanke, rose only 1.0 percent from a year ago, below the forecast of 1.1 percent inflation. Meanwhile, the core figure only rose 1.1 percent from a year ago, as expected.

Markets Chug Higher

S&P futures rose to a weekly high after the data in a slow churn higher as markets seem to be repricing the risk of Fed tapering. Given the weak GDP report for the first quarter yesterday, slow inflation, and continued low employment growth, markets have begun to reconsider fears over the Fed tapering asset purchases in what can only be described as the "tapering of the tapering talk" trade.

S&P futures rose to 1,607.25 pre-market after opening at 1,596.00. Futures have now recouped nearly 58.5 percent of the post-Bernanke losses, in the so-called 50-62.8 percent retracement "box." 1,611.25 marks the top of this box and could be resistance on any push higher.