Initial claims for first-time unemployment insurance edged higher to 214,000 for the week ended December 15, slightly below expectations, while claims for the prior week were unchanged at 206,000. Initial claims remain well below 300,000 – a key threshold generally associated with a healthy labor market.
Claims data have been a bit more volatile over the past month. For the week ended November 24, they surged to 235,000 – the third highest single-week result this year. Less than a month later, claims fell sharply to 206,000, near the lowest level in a half century.
The four-week moving average smooths some of that weekly volatility. That measure dipped to 222,000 last week, reversing the recent uptrend, while also remaining well below the result for the comparable period a year ago.
The broad labor market is tight by many measures – and despite some signs of a modest slowdown – has remained exceptionally resilient. Even in the face of the recent moderate uptick, layoffs remain very low and consistent with an economy that is growing steadily.
Job creation also remains solid, despite slowing in recent months. Still, unemployment has held steady at 3.7% again in November.
The combination of strong labor market conditions and inflation that has risen to the Fed’s target has given policymakers the confidence to raise rates four times this year, including the most recent hike announced yesterday. Acknowledging that the Fed remains focused on draining the punch bowl, monetary policy is still tipped toward accommodation.
At least for some, the mood has become increasingly cautionary in the past several weeks. Concerns about the economic outlook have been apparent in both bond and equity markets, with long-term rates receding and equity market volatility surging.
Still, there’s a clear divide between the relatively upbeat view put forward by the Fed and the reaction of investors. The Fed’s views are supported by the strength of the data; the market’s views are driven by fears about where that data is headed.
The economy is clearly cooling, but this should not be a tremendous surprise, given the expectation that the tax-cut fueled surge earlier in the year would fade. There’s still a huge difference between slower growth and no growth. A broad range of data suggests that the economy is still growing at a solid pace – likely still above trend.
Investors point to a variety of risks to the economy in the coming year. Those risks exist, but recent data still strongly indicates that the expansion remains on track.
Economic conditions are constantly evolving, and risks have risen incrementally. Nonetheless, we believe that the outlook today for a deceleration in growth with further runway for the economy to continue to expand remains intact.
In our view, the rumors of the “death” of this expansion have been greatly exaggerated.
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