If the US labor market’s Clark Griswold driving full-speed through a “road closed” sign on the way to crash-landing in the desert, somebody forgot to tell jobless claims.
For the second week in a row, the initial claims headline printed a four-month low, this time down at 218,000. The prior week’s headline, which captured the NFP survey period for September, was revised higher by 3,000, to a still-low 222,000.
As the figure below shows, we’re staring at levels last observed in May. The four-week moving average is now 224,750.
Consensus was looking for 223,000 from Thursday’s headline.
Continuing claims for the week to September 14 were 1.834 million, up 13,000 and ahead of estimates. The prior week was revised lower to 1.821 million, the least since the week of June 8.
I’ve resigned myself to the long odds of a Fed “pause” at the November meeting. Adriana Kugler was pretty emphatic on Wednesday evening. “The labor market remains resilient, but the FOMC now needs to balance its focus so we can… avoid unnecessary pain and weakness in the economy,” she said, while eating sloppy joes with a group of underserved, predominately minority high school students gathered at a food bank in Chicago. I’m just joking. She spoke at Harvard.
At the same event, Kugler said she “strongly supported” September’s 50bps rate cut and emphasized that as long as inflation continues to recede, she’ll “support additional cuts going forward.”
See that belt Adriana’s wearing in the picture? That’s Louis Vuitton. If my fashion eye’s good (and I can assure you it is), Kugler’s donning the Dauphine 25mm reversible there. It’s black on one side and it has the classic monogram on the other. The buckle’s unmistakable: It’s inspired by one of the house’s most iconic bags — the namesake Dauphine. That belt will run you $700 with tax. Think you’d never buy one? Think again. Because guess who pays Kugler’s Fed salary? That’s right, taxpayer: You do.
Anyway, Kugler’s remarks admitted of some nuance, but the bottom line appears to be that everyone — with the possible exception of Michelle Bowman — fully expects to cut rates again on November 7. It’s just a matter of how large that cut will be. The market would prefer 50, on the “off” chance the Committee’s interested in the market’s opinion.
I’m (more than) open to the notion that the jobless claims series isn’t very useful anymore. At one juncture, I think I called it a “dead indicator.” But if you believe claims are still worth looking at, the message is pretty clear: There’s no recession. These initial claims headlines aren’t even close to levels that would traditionally presage problems.
Of course, the Fed wants to preempt problems — i.e., a proactive Fed, not a reactive Fed. That’s admirable and desirable. Still, it’s very difficult to square a succession of half-point rate cuts (if that is indeed what’s coming) with sub-220,000 initial claims headlines.
Meanwhile, the final estimate of Q2 GDP for the world’s largest economy confirmed the second estimate: Headline growth was 3%. The personal consumption component was revised slightly lower versus the second guess to show a 2.8% pace, but that was still markedly better than the advance estimate. The core price index was unrevised at 2.8%.
I have mentioned several times that I believe Powell is a good guy w/ a big heart. Unfortunately, his heart seems to repeatedly get in the way of a reasonable perspective about market participants’ tendencies. Powell repeatedly forgets that those who bleed green and worship the almighty dollar are running markets (at least for now). Give them any reason to keep gunning stocks and they’ll run w/ it.
Powell should have listened to H and others who recommended a 50bps cut, then a “let’s wait on the data” approach before the Nov and Dec meetings. He’s getting very close to putting himself in a very tough position on inflation and markets–again. Rising inflation and increased volatility in markets will gradually, and perhaps suddenly, cause economic conditions that hurt, not help, the lower income folks he genuinely cares about.
And look, there’s nothing “wrong” with cutting 50bps on November 7 if we get there and it turns out the data supports it. There’s nothing “wrong” with cutting 100bps on November 7 if the data supports it. The only issue I have is with this compulsion they’re exhibiting not just for pre-judging the very next meeting, but for pre-judging the very next meeting the very next day after the most recent meeting.
And economists models are still off balance – else this jobless surprise would not have happened – consistently – time to fix the models boys and girls
Glad you pointed out that the cut in November talks started the next day. I thought what the hell is going on or on today’s world WTF!
I think its still early to draw conclusions. Its clear the governors are cut happy, but we still have two employment reports and we’ve seen Powell successfully shift mainstream expectations before. It really only matters what Powell thinks and he’s conscious of his predecessors’ outcomes in prior cutting cycles. When stocks are breaking record highs, unemployment at record lows, the Fed cuts less and slower. The market and apparently the impetuous committee seem to forget this cutting cycle is not because of economic crisis.
The more leading indicators of the economy are slowing. Most employment metrics are lagging or at best coincident. So I am sad to say I believe you are constructing a straw man argument and knocking it down. In fairness, you do cite a risk management approach which I believe is correct. So I give you credit there. The Fed’s job is to maintain steady price growth and employment. Real target rates are high. Inflation is slowing, and the Fed’s job is a balancing act and they know that inflation at least for now is coming to target. Therefore, they are supposed to cut rates. Why chance a recession when your inflation target is in view? In fact on a 3 month moving average inflation is slightly below target…
“So I am sad to say I believe you are constructing a straw man argument and knocking it down.”
No sh-t.
‘I’m just joking. She spoke at Harvard.’
I spit my coffee out;)