The jobs picture keeps improving

As these two charts show, there is no sign whatsoever that the economy is weakening. Weekly unemployment claims are down very close to levels that one would expect to see during a business cycle expansion. Corporate layoffs are down to a trickle, relatively speaking. If there's anything missing, it's that hiring activity is still relatively subdued, but we'll learn more about that tomorrow. In any event, there is no reason why the economy can't growth at a 3-4% pace given these numbers. While that won't do much to bring down our sky-high unemployment rate (which has been depressed by the staggering number of discouraged workers who have given up looking for a job), and it won't close our 13% output gap, it is better, I think, than what the market has been looking for, and that's why it pays to be optimistic.

The equity market has been priced to bad news from the economy, and so it has been forced to rally as the economic fundamentals gradually improve, as the chart above suggests.