Claims are stable, may be improving

On a seasonally adjusted basis, claims last week fell to a level below the average so far this year (top chart). Actual claims (second chart) have not yet experienced the increase that is typical for this time of the year, but it is too early to tell whether this is a big deal or not. The next few weeks should tell the tale. If actual claims fail to increase as expected, then the adjusted number will start declining and that would be good news to a market that is still priced to very slow growth.

My growth expectations remain unchanged from my prediction at the end of 2008: 3-4% real growth on average. I think this number is reasonable, because I expect employment to increase about 1% a year (a number that is pretty meager in fact, and less than what we have seen so far this year in the private sector), and I expect the productivity of all those working to increase by about 2% a year (and that is less than the 3% average over the past two years, less than the 2% average over the past several decades, and less that the 3.7% rate we've had over the past year). Growth in the labor force plus growth in productivity gives you real growth, and my assumptions are actually quite conservative. Growth of 3-4% is consistent with an unemployment rate that remains painfully high for some time to come, and with a recovery that is painfully slow.

If Congress can extend the Bush tax cuts after the election, and if the electorate delivers a clear mandate for change (i.e., less spending, and less government intervention in the economy), then most likely I would raise my growth forecast for next year.