Unemployment To Take Center Stage Before Jackson Hole, August 2012 Rally May Continue:
U.S. economic data is a bit better but not trending in a strong positive direction. Aside from housing, the overall economy is still extremely weak and home sales may be coming off of multi-year bottoms after an average price decrease that hasn’t happened in over a generation. The number of American workers looking for jobs rose for the second week in a row, a sign the unemployment rate could be a major topic next week for Ben Bernanke at the Jackson Hole Economic Symposium which takes place August 30 to September 1.
Initial jobless claims increased by 4,000 for the week ended August 18 2012 to a seasonally adjusted 372,000 the Labor Department said Thursday. The increase was the highest in a month. This doesn’t bode well for those who think the economy is turning around and the Fed has no chance of implementing QE3. If jobs numbers are weak again this Thursday and the unemployment headline number remains above 8.3 or dips slightly higher for August 2012, the Fed will have ammunition to claim it needs to stimulate the economy. The gains in the U.S. economy over the last three weeks will be negated by a jobs number that keeps unemployment above 8 percent for 43 consecutive months. To some degree, the Fed has been behind the curve for not anticipating this and moving sooner.
The public is beginning to feel the pain of extended unemployment and events today in NYC suggest the jobs rate is the most important issue for Americans, not Medicare, the gold standard, auditing the Fed or the ‘fiscal cliff’. While these issues are extremely important – they don’t cause people to behave badly compared to extended unemployment which impacts them directly.
We have moved from neutral bearish to neutral as the current, hated rally continues. The TLT is likely to show more weakness in the next few sessions but we expect volatility to rise.