Worrying Rise in US Jobless Claims – One Time Event

The level of US unemployment claims has been very stable of late: around 350K to 365K. This narrow range was broken now with a rise to 380K.

While this level is far from justifying more monetary stimulus, there is some fear it could turn into a trend, with serious implications for QE3 and for the identity of the resident at the White House.

Market expectations stood on a drop from 357K (initially reported last month) to 355K this time. The big disappointment is from the leap to 380K. But also last month’s figure wasn’t that good: it was revised to the upside, from 357K to 367K, also a bit higher than what we’ve seen in recent months.

In addition, this is the first jobless claims report after the Friday’s disappointing Non-Farm Payrolls, which rose by only 120K. The unemployment rate didn’t rise, but actually ticked down from 8.3% to 8.2%.

Looking deeper into the data showed it could certainly be temporary. Here are 5 reasons why this could be a one time event.

This new rise in claims puts the temporary nature in doubt. The dollar retreated lightly following the data.

Other US figures were mixed: PPI remained unchanged (+0.3% was expected), while Core PPI rose by 0.3% (exp. +0.2%). The US trade balance deficit squeezed to $46.3 billion, better than a deficit of $51.9 billion and better than $52.5 billion seen last month.

All in all, the US economy is doing OK, but still not out of the woods. A third round of quantitative easing remains on the cards and cannot be totally ruled out, even if chances are low.

The unemployment levels are also critical for the US elections, especially the trend. History shows that a dropping trend helps the incumbent, while a rise lowers his chances of re-election.

Further reading:  US payrolls simply a bump in the road