After spiking last week, initial jobless claims dropped more than expected for the week ended May 18, to 340,000. The four-week average was basically unchanged, dipping just 500 to 339,500.
As we noted a week ago, the volatility and noise in the weekly claims data makes it imperative to take a step back and not focus excessively on a single report. The larger-than-expected decline this week reinforces that fact. Last week’s surge does not appear to have been the first indication of a sustained uptick in layoffs.
The recent volatility in weekly claims data notwithstanding, the employment market remains in a slow healing process. Overall, recent data is consistent with the slow grind forward that labor market participants have endured for much of the past four years.
As sequester-driven government spending cuts continue to bite, private sector job growth will need to be the primary catalyst for continued improvement in the labor market moving forward.
Along with keeping actual and expected inflation in check, nurturing the jobs recovery remains a primary concern for the Fed. Most evidence indicates that employment growth remains far from robust, while April’s CPI print suggests inflationary pressures continue to ebb.
Given those factors, we anticipate that the Fed is likely to maintain its accommodative monetary policy stance for now. Having said that, it’s clear that there is a growing rift within the Fed about the necessity of the program and how and when to begin to unwind it. The Fed remains in uncharted waters, but the absence of stronger growth is making it exceedingly difficult for the nation’s central bank to pull the plug on its bond-buying program. Investors and other market observers are certain to keep a close eye on not only what the Fed does, but what it says, as a precursor of actual policy adjustments to come.
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