Weekly jobless claims back below 400,000

Weekly jobless claims fell 37,000 in the latest week to 391,000, the first time since early April that jobless claims dipped back below the psychologically important 400,000 level.

The unexpected decline also had a favorable impact on the 4-week moving average, which slipped 5,250 to 417,000.

Although this is one of my favorite leading indicators because of its timeliness and its read on business confidence – note, its rise above 400,000 in the spring provided an early warning signal on the impending slowdown, I’m skeptical about today’s welcome drop since there has been little else to suggest that a much-needed pick up in economic activity is at hand.

Further, Bloomberg News reported that difficulties in making seasonal adjustments may have played a role.

I’d like to wait for another round or two of data.

Fed begins two-day meeting against weak backdrop

The Fed began its two-day meeting today and will conclude tomorrow against the backdrop of a floundering economic recovery and a jobless rate north of 9%.

Most analyst believe the Fed, which pledged to hold rates low until at least mid-2013 at the August meeting, will take another step toward easing in the hopes of jump-starting employment growth.

Promising to hold rates low for another two years appears to have done very little for the economy and many believe new steps will have just a limited impact.

The Street expects the Fed to extend the length of its bond portfolio, popularly called “Operation Twist,” by swapping shorter-term debt for longer-term debt.

Theoretically that might lower longer-term rates.

But how much this is already priced into the yield curve is unknown, and long-rates are already at historic lows – a 4% 30-year fixed rate mortgage. And potential home buyers aren’t jumping at the bait.

So it stands to reason that even lower rates would have just a muted impact on the economy.

Despite expectations, correctly calling what the Fed may do can be as dicey as calling the offensive play on third and goal at the five.

Will it be a run up the middle, sweep around the end, QB rollout and pass? Maybe it’s not that tricky but it’s possible the Fed could surprise.

A full-blown QE3 – always a possibility – could be implemented, but the track record for QE2 – higher inflation and anemic growth – suggests we’d get even less bang for the buck this time around.

The Fed could cut the rate it currently pays on excess reserves (near $1.6 trillion) from 25 basis points, as it hope to encourage lending.

However, lending institutions are already forgoing higher rates on credit cards, mortgages, auto loans and business loans by earning just a paltry 25 bp!

Cutting the rate by 10, 20 or the full 25 would provide little incentive to lend when many are shying away from new debt.

Further eliminating the rate on excess reserves could make it more difficult for the Fed to manage the fed funds rate.

Unfortunately for the millions who remain jobless, the Fed has few credible options left in its arsenal.

Faltering consumer confidence takes a toll on retail sales

Consumer confidence, as measured by both the Conference Board and the University of Michigan, went into a tailspin in August – thanks in large part to the divisive debt ceiling debate, the S&P downgrade, the faltering stock market and the deepening gloom emanating from Europe.

With growing uncertainty and weak job and income growth, retail sales out this morning had been highly anticipated since it would provide a concrete gauge on the public’s mood.

Unfortunately, the best consumers could muster was a flat reading in August. Excluding autos, sales managed a meager 0.1% rise.

Further, June and July were revised lower.

Last month’s free-fall in consumer confidence, along with the factors mentioned above, very likely accounted for the weak showing at the nation’s malls.

If there is a silver lining, sales did not mirror the steep drop in confidence, and it appears the economy continues to expand at a very tepid pace.

But the anxiety many of us feel is being reflected in the latest numbers offered up by the government.

Growth in nonfarm payrolls stalls

The government reported this morning that nonfarm payrolls in August were unchanged from the prior month.

That’s right – no change, zero. In the meantime, the private sector added just 17,000 jobs and the unemployment rate held steady at 9.1%, the fifth consecutive month the jobless rate has held above 9.0%.

A more formal look is available at Examiner.



Simply put, fiscal and monetary policy have their limits and we are seeing this play out before our eyes.

The president proposed and passed an$800 billion stimulus package early in his administration.

And the Fed has kept rates at zero for over two years and has pledged to keep rates low for another two years.

It has also pumped over $2 trillion into the economy in what is popularly called QE2.

The end result: very weak economic growth and a stubbornly high unemployment rate.