Jobless Claims (week of 10.3.15) Research Notes

by Jim Baird on October 8, 2015

CaptureWeekly jobless claims fall; 4-week average still near 15-year low

Initial jobless claims fell to 263,000 for the week ended October 3, a moderate decline from the previous week’s revised result of 276,000. The less volatile 4-week moving average also declined by 3,000 to 267,500.

Jobless claims data has remained a relative bright spot in recent months even as some labor market data has softened. The 4-week moving average has been consistently below 300,000 since March and remains near its fifteen-year low.

Particularly in light of the sub-par September jobs report that confirmed a slowdown in the pace of job creation in recent months, solid and steady jobless claims has been a source of reassurance about labor market conditions. As such, jobless claims releases will be closely watched in the coming weeks, as any sustained surge in claims would be viewed as confirmation of further softening in the U.S. economy.

The recent weakness notwithstanding, payroll growth has been constructive through much of 2015, as the economy added jobs at a pace nearing 200,000 jobs per month through the first three quarters. Absent a pickup in the final quarter, however, the economy is poised to create fewer jobs this year than in 2014.

Conviction around the strength of labor conditions has faltered, but the overall trend in job creation and the continued decline in the jobless rate provide support for the full employment component of the Fed’s dual mandate. Conversely, inflation and inflation expectations continue to fall short of the Fed’s goals, held in check by muted wage growth, falling energy prices and the strong U.S. Dollar.

Disinflation, and more recently faltering growth outside the U.S., have been the stated rationale for the Fed’s decision to extend its near-zero interest-rate policy longer than originally anticipated.

Although the Fed concluded to not raise interest rates last month, the post-meeting statement indicated that the majority of FOMC members maintain the belief that it will be appropriate to raise rates before the end of the year. Whether data will support such a move remains to be seen, but financial market gauges of the path for Fed policy suggest a high degree of skepticism among investors.

September’s Employment Situation Research Notes

by Jim Baird on October 2, 2015

CaptureSeptember payrolls fall short of expectations; prior months revised lower

Job market conditions faltered in September as the economy created 142,000 jobs – well below expectations for about 200,000 new jobs for the month. Compounding that disappointing result, revisions to the preceding months knocked another 59,000 off nonfarm payroll growth – contrary to expectations for upward revisions. The net result of a gain of just 83,000 can only be viewed as disappointing.

Nonetheless, even the disappointing results for August and September easily exceed the rate needed to hold the unemployment rate steady. The unemployment rate was unchanged at 5.1% for the month, as expected.

Jobs growth data has been consistently positive over much of the past two years. The softening in that trend in recent months is troubling. While the manufacturing sector was hard hit, the weakness in job growth is also evident in the service sector.

After a strong second quarter, the economy appears to be feeling the effects of the strong dollar and weak commodity prices. The slowdown in the global economy appears to be rippling through the U.S. economy as well, although it’s far too soon to gauge the magnitude of that effect.

Average hourly earnings decreased in September, as both average weekly hours and average hourly earnings dipped fractionally. The result was a 0.3% drop in weekly earnings for the month, although they are still up 2.2% over the preceding year.

Two consecutive months of softer-than-expected job creation does raise a red flag for economists, investors, and Fed policymakers.

With the employment component of the Fed’s mandate faltering and inflation still persistently below the central bank’s 2% target, the likelihood of an interest rate hike before the end of the year is fading. Fed chair Janet Yellen recently indicated that a rate hike before 2016 was still in the cards. With this news, the case for a rate hike just became harder to make.

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September Payrolls Disappoint, 142,000 Jobs Added, Unemployment Remains at 5.1% (Barron’s)

September Perspectives Podcast

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A new PMFA Perspectives Podcast is now available via the link below: September Market Perspectives Podcast

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Jobless Claims (week of 9.19.15) Research Notes

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August’s Employment Situation Research Notes

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August 25, 2015

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