Initial jobless claims fell unexpectedly in the first week of August to 361,000. The four-week average ticked upward to 368,250, reversing its recent downward trend. While jobless claims in recent weeks have been surprisingly positive, some have argued that noise within the seasonal adjustments may have skewed the results. The Department of Labor typically adjusts for the impact of the temporary factory shutdowns by automakers. In reality, factory shutdowns were less pervasive than normal, potentially resulting in the seasonal adjustments overcorrecting the actual impact.
The recent positive trend in jobless claims may prove to be fleeting given persistent weakness across a range of economic indicators encompassing consumer spending and the cyclically sensitive manufacturing sector. Nonetheless, recent results are consistent with an economy still creating jobs, albeit at a less-than-ideal pace.
Corporate America remains hesitant to aggressively hire or invest against a backdrop of a lackluster economy and significant uncertainty surrounding future fiscal policy. The sense that policymakers in Washington aren’t interested in any serious effort to tackle the issues before the election increases the risk of another showdown at the eleventh hour similar to the debt ceiling negotiations in 2011.
Conversely, the Fed’s recent acknowledgement that the economy is slowing buoyed investor conviction that the central bank will take further action to ease monetary policy. With the jobs market still lackluster and inflationary pressures seemingly in check, the Fed seemingly has room to act. Whether or not further quantitative easing will have a meaningful effect is questionable. Nonetheless, investors have assumed a bit of a “risk on” stance in anticipation of more stimulus from the Fed.
From a bigger picture perspective, we believe that very little has changed. Lackluster global economic growth, the ongoing debt crisis in the Eurozone, and the lack of clarity around the direction of fiscal policy and effectiveness of monetary policy continues to foster an uncertain environment. We continue to believe that the slowing economy remains in a vulnerable state and we remain cautious in our outlook.
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