Initial jobless claims fell in the week of June 2 to 377,000 from an upwardly revised 389,000 during the prior week. The four-week average increased moderately to 377,750, still well below the key threshold of 400,000 that would considerably escalate concerns about labor market conditions.
The modestly better-than-expected claims results may buoy spirits briefly, but we have to be careful not to read too much into a single week’s result. We’ll need to see better results for at least several more weeks to gain some confidence that weekly claims are stabilizing.
From a larger perspective, today’s jobless data is likely to be shrugged off by investors focused to a greater degree on China’s decision to cut interest rates and hints of progress in Europe. As we’ve seen in recent weeks, the market can be quick to react to even rumors of policy shifts to address the intertwined fiscal and banking crisis gripping the Eurozone. In the absence of a policy response, the European crisis remains a real threat to growth globally and renders the U.S. economy vulnerable as well. In recent days, hopes have been that policymakers are closing in on some solutions that could at least buy some more time.
Investors would be wise to steel themselves for more volatility in the near-term. As the past week has illustrated, the market is still looking for greater clarity about what lies ahead amid a series of conflicting developments that don’t point definitively toward either a positive or negative near-term outcome. Market choppiness has been the result.
Further deterioration in economic data would have the immediate impact of stoking concerns about whether or not the U.S. is slipping toward recession. However, it would also increase the likelihood of another round of monetary easing by the Fed, potentially providing a catalyst for greater risk-taking and a rally in risk assets.