Unemployment Rates signal more trouble to come

Initial jobless claims were higher than expected, rising 12,000 to 500,000 in the week ending August 14th (the week that corresponds with the August employment survey period). The four-week average of claims increased 8,000 to 482,500.


BOTTOM LINE

While we do not expect that the U.S. will fall back into recession, the rise in the four-week average of claims is quite troubling and signals that private payrolls may not expand in August. We cannot excuse the backup in claims on any known special factors and we must treat them as a legitimate reading on the state of the labor market. If we look at the last two jobless recoveries, we see similar moderate reversals of the decline in claims in the early stage of the recovery and in both cases it signaled a temporary stalling out in the pace of job growth. Looking at these data, the Fed is likely to fear (as do we) that there may be an interruption of the modest payroll growth we have seen to date and, if we see a couple of months of private payroll declines, we could well see an expansion of QE in the fall (given that the Fed opened the door to further QE at the August meeting). From a political perspective, a weak labor market makes for a dreadful economic backdrop for incumbents in the November mid-term elections.

Source RDQ

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