Jobless Claims Improve but Don't Get Too Excited

According to the latest jobless claims number, the U.S. labor market continues to improve. However the pace of improvement is sluggish at best and reflects the slow turn in the U.S. economy. Weekly jobless claims rose by 502k, down from 514k the previous week while continuing claims dropped from 5.77M to 5.63M.

Even though weekly claims are now at the best levels since January and continuing claims at the lowest level since March, last week's disappointment non-farm payrolls number makes it hard to believe that we are really seeing a material improvement in the U.S. labor market. Companies continue to layoff workers with employees at AOL, Sprint and Electronic Arts receiving pink slips this month. If this holiday shopping season proves to be weak, more retailers may have to close shop, which should translate into even more layoffs.

Also, many people are waiting to put on their party hats once jobless claims break below 500k. This is a psychologically important level but given that we are only 2k jobs away from that point, the actual significance of claims printing below 500k may be minimal. Many people believe that the recession ended in July 2009 and if that is the case, then we have only see a weekly average improvement of 0.67% in claims since then. After the 2001 recession, the pace of improvement in jobless claims was double that. Therefore as Fed President Janet Yellen suggested, the U.S. economy could be facing a L shaped recovery with a gradual tilt to the upside which may discourage the Federal Reserve from rapidly unwinding monetary stimulus. As a result, the dollar carry trade remains intact.