Thursday, August 15, 2013

Claims continue to fall, but the market continues to worry for naught

Weekly claims for unemployment continue to fall, now reaching a new post-recession low of 320K, which by the way was less than the expected 335K (the chart above shows the 4-week moving average).

Can there be any doubt that the economic fundamentals continue to improve? That there is no sign of recession or incipient economic weakness? After more than four years of improvement, it's amazing to me that there can still be so many who moan and groan about how this recovery is so awful. Yes, we should and could have had a lot more people working now, but that doesn't negate the fact that things have been improving relentlessly for over four years.

Claims are rapidly approaching the lowest level that we have ever seen relative to the size of the workforce. What's not to like? Oh, yeah: recessions almost always follow low levels of claims. But it might be years still before another recession hits. Every recession in my lifetime has been the by-product of a tightening of monetary policy. The market is in fits these days not because the Fed is tightening, but because the Fed is nearing the point at which it will begin to ease less. Tapering—buying fewer bonds each month—is still accommodative policy, it's just policy that on the margin is becoming less accommodative.

We are still years away from the time when monetary policy will become tight—as defined by real short-term rates that approach 3-4%, and a yield curve that becomes flat or inverted. The above chart makes it clear that the economy faces absolutely no threat from monetary policy at this juncture.

1 comment:

Gloeschi said...

...and the "demand for safe assets" is so high that the 10-year trades north of 2.85%? All the way up from 1.65? Despite Fed monetizing 100% of net issuance? Please.