Initial jobless claims fell modestly by 2,000 in the week of June 16 to 387,000, but that improvement resulted from a downward revision in the prior week’s data. The 4-week moving average also rose to 386,250, the highest reading of the year.
Today’s report does little to change the outlook for the jobs market. The fact that the numbers remain below the highly-watched 400,000 threshold is a clear positive, but the lack of a more meaningful reduction in claims reinforces that the recently weaker results weren’t an anomaly.
That announcement clearly demonstrated that the Fed has taken notice of the recent weakening in the jobs market, and responded through its extension of “Operation Twist.” While the move provides some additional stimulus at the margin, its impact is likely to be relatively limited.
The reaction by the market suggested modest disappointed in the Fed’s decision, as investors were hoping for a more aggressive move. Though the announcement of monetary easing in recent years has often prompted equities to rally, early indications are that the market will need a more sizeable degree of intervention by the Fed to act as such a catalyst. The overhang of the continuing crisis in Europe, slowing global economy, and threats of a further slowdown in the United States all weigh heavily on investor psyches.
The Fed could certainly take additional steps to attempt to prop up the economy as it evaluates the direction of economic conditions. For now, however, the debate will likely focus on whether or not the extension of “Operation Twist” will have any meaningful impact and, if not, whether the economy can reverse its recent trend in the absence of more fiscal or monetary stimulus. The near-term direction of jobless claims, nonfarm payrolls, and the unemployment rate will undoubtedly be key to the Fed’s decision-making process in the months ahead.