Employment Numbers: Another Warning Sign?

by: James Picerno

Sometimes the numbers send out a warning, sometimes not. Deciding which one prevails and when is part of what makes the dismal science interesting -- and frustrating.

The challenge presents itself anew today in the wake of Thursday morning's update on initial jobless claims. What, if anything, are the numbers telling us? Taken at face value, the answer's clear: the number of workers filing for unemployment benefits jumped last week to the highest level since late August. That could signify nothing more than the usual give and take that accompanies this volatile data series when measured in seasonally adjusted terms, as our chart below shows.


Statistically, we're still within the "normal" range, based on a reading of recent history. But until and if initial claims move materially higher, it's still an open question if there's an early warning sign brewing here in terms of the economy's future path.

Traders, of course, are an impatient bunch and so they aren't inclined to wait for additional context. Consider trading in Fed funds futures, which have already read this morning's news and decided that it's best to assume that the economy is weakening on the margins. Such thinking has inspired buying in the November '07 contract to the point that the crowd's becoming increasingly convinced that the Fed will cut rates again by 25 basis points at the next FOMC meeting on October 30/31.

Whether another rate cut will keep the bulls happy generally is another question. Judging by this morning's slide in stocks, it'll take more than 25 to keep the train rolling.