Friday, July 23, 2010

Jobless Claims Have Highest Spike Since February

The highest weekly spike in jobless claims since February is a reminder that the employment market continues to struggle. James Picerno describes the dilemma faced by the Federal Reserve in deciding between additional stimulus to address short-term problems or an exit strategy that will improve the long-term situation. See the following post from The Capital Spectator.

Well, that didn’t last long. Today’s weekly update on new jobless claims dashed hopes for the moment that the previous downturn in this series was the start of something new in the way of positive momentum for the labor market. Indeed, the numbers were sufficiently encouraging a week ago to inspire asking: Is the dip real? We now have the first installment on an answer. It's not necessarily the last word, but so far the response is discouraging.

New filings for unemployment benefits surged by 37,000 last week on a seasonally adjusted basis. That's the biggest weekly rise since February's 40,000 pop. ""It's very disappointing to have this leading indicator of economic conditions jump higher," John Lonski, chief economist at Moody's, told today. "This is the latest reminder of a weak labor market, and the jump preserves worries regarding the adequacy of economic growth."

Of course, there's always a case for thinking that the latest number for any economic report is less (or more) than it seems. And so it is with today's jobless claims. Tony Crescenzi, a portfolio manager at bond giant PIMCO, offers one possibility for reserving judgment, writing (via "Elevated levels of claims remain consistent with a relatively subdued pace of job growth, but it is important to keep in mind that many individuals are filing for benefits and hoping to capitalize on the many extensions of benefits that have been approved."

But even if today's rise in jobless benefits doesn't mean much, there's still the bigger problem that's plagued this metric all year: it's going nowhere fast. As the weeks and months roll by without a material decline in new filings for unemployment insurance, it's getting tougher to argue that the labor market's salvation is just around the corner.

Meantime, today's numbers only remind that the stakes are that much higher for the next phase of monetary policy. As we discussed in our previous post today, it's not yet obvious that the Fed is prepared to go to the next level with monetary stimulus, even if the case for acting grows with each new number.

Adding to the list of worries is yesterday's mixed news in housing for June: a small annualized rise in new housing permits issued last month (+2.1%) that was tempered by a bigger fall in new housing starts (-5.0%).

Perhaps it's prudent to wait a bit longer for more economic reports to come in before rolling out the big guns of quantitative easing; perhaps not. But the burden of waiting increasingly falls on those who argue for staying the central bank's hand. The Fed's balance sheet has already ballooned dramatically over the past two years, and so the exit strategy challenge is already a big question mark for the future. But not today. If Bernanke and company do nothing at this stage of the game, that's not going to make future policy choices any easier, or the risks any smaller. But doing nothing on the monetary front might bring big problems for the economic cycle in the near term. Choices, choices.

This much is obvious now: the broad trend isn't improving. The real worry is that it may actually be getting worse. Tick tock, tick tock…

This post has been republished from James Picerno's blog, The Capital Spectator.

No comments: