Thursday, 3 March 2011
Jobless claims – could we have Finlay reach the turning point.
Three solid pieces of data today causing investors to wonder if maybe now, this time at long last, we have broken the chains of the jobless downtrend and turned towards real job recovery.
Just by looking at these pieces of data we might be thinking there’s a lot of hope ahead.
- First jobless claims : 368 000, that is a 2 and half year low
- the job component of the NFIB small business jobs went up 0.17 a five year high
- the ISM services when up to 59.7 a 5.5 – year high.
So the question remains, can this be the beginning of a new trend in job and economy.
The data is certainly showing an improvement in the job picture but is still not clear
if you look at the numbers for the past four months, especially ADP reports and consensus estimates, where it’s been one disappointment after another, some investors are willing to form a positive opinion on the outlook of the economy, but first we need to take a good look at the recalibrating of the US economy.
It is true, that certain sectors of the economy are doing exceptionally well, like the manufacturing, the service sector, and corporations quarterly earnings are strong, conversely, the state and local government continue to be a drag, a drag on GDP, subtraction from job growth, housing still terrible with no indication of upward movement.
So how should we bench mark the number we should see?
Against prior experience, probably we are in a slower growing economy, still unbalance, the economy is moving towards the right direction. We are growing, we are doing well, but there are still some sectors that are holding us back from the kind of trends we saw in the past.
I think the Fed will start normalizing policies when the wage trends starts to stabilize. As long as wages are on the down trend, there will not be any real underlying inflationary pressure. However, if wages starts to stabilize, then we know that a lot of the labour market slack is gone because job growth is picking up and the Fed will start moving up interest rates, and inflationary measures will be more noticeable.
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