Friday, July 25, 2014
Inquirer Daily News

Jobless claims rising, but economy grows a bit

Economics in a nutshell: Rising jobless claims are never good but this may just be the usual volatility not a sign that sequestration and tax increases are starting to eat into growth

Jobless claims rising, but economy grows a bit

INDICATOR: Fourth Quarter GDP (final revision)/Jobless Claims

KEY DATA: GDP: 0.4 percent Jobless Claims: 357,000 (up 16,000)

IN A NUTSHELL: “Rising jobless claims are never good but this may just be the usual volatility not a sign that sequestration and tax increases are starting to eat into growth.”

WHAT IT MEANS: The economy grew a touch faster, if you can use that word, in the fourth quarter than thought. Still, the increase was minimal at best. The second and final for now estimate of economic activity at the end of last year at least keeps growth in the positive range, not the negative that was initially estimated. There were no huge adjustments as consumers spent a little less, business investment was a touch stronger and the trade deficit narrowed a little more. What was good to see were strong corporate profits. Businesses did really well at the end of the year and distributed a lot of that money through dividends, in part to beat the expected tax increase. Company balance sheets are getting better and better and some of that is finally finding its way into wages and salaries. That is critical if consumer spending, which was not great in the fourth quarter of 2012, will improve this year. Stronger balance sheets will also limit the impact on the labor market of sequestration and tax increases. Which brings us to the weekly jobless claims. The claims jump was bigger than expected but these data are hugely volatile. While I believe the rise is nothing to worry about, the surge raises the question whether this is the start of the slowdown being created by sequestration starting to kick in and the tax increase impact beginning to build.

MARKETS AND FED POLICY IMPLICATIONS: GDP is a look back not forward but it does give us a picture of where businesses and consumers were at the end of last year. Households were willing to spend money, but only carefully. Businesses, however, were much more optimistic, if you use their investment decisions as a true sign of corporate attitudes. Thus, while the negatives of fiscal austerity and tax increases will moderate growth this year, they will not kill it. That is why I don’t view the one week of higher than desirable jobless claims as troublesome. One good thing about weekly data, you only have to wait a week to see where things are going. As for the markets, there are bigger issues, such as Cyprus and Europe, to worry about than a one week jump in unemployment claims. So far, there is little or no panic in Cyprus and that is a reason to start exhaling. The EU is hardly out of the woods and the concerns about growth on the Continent will be with us for quite some time. With the continuing resolution passed, we will not likely have another budget crisis this fiscal year other than attempts to modify the sequestration. That should keep investors from getting too disgusted with Washington, though there is little reason to think anything good will come out of Congress.

About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel at joel@naroffeconomics.com .

Joel Naroff
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