If there's any one still wondering if the economy's slowing, this morning's update on weekly jobless claims may help blow some of the clouds of doubt away.
For the week through December 14, initial jobless claims rose to 346,000, up 12,000 from the previous week, the Labor Department reported. That's not the high point in recent history, which was November 14's 353,000. Nonetheless, the trend is telling. And as our chart below illustrates, the trend definitely isn't our friend lately when it comes to jobless claims. The 10-week moving average of new weekly filings for unemployment insurance rose to 334,500. That's the highest in two years.
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Of course, one might say that jobless claims are still within the range that's prevailed for several years, and on that basis the trend signifies only statistical noise. Perhaps. In fact, economic slowdowns are only obvious in hindsight. Then again, given the broader economic context of late, which is less than encouraging, the warning sign emanating from the jobless numbers today suggests that the risk of trouble for 2008 is still rising.
The bond market seems inclined to agree. A new rally appears to be brewing in the 10-year Treasury, pushing the yield down again to 4.07% at yesterday's close. In fact, one could argue that fixed-income traders now have the "all clear" sign to run bond prices up (and yields down) amid the mounting evidence that a slowdown is upon us. But there's a complicating factor: inflation.
A number of pundits have invoked the "S" word (stagflation) recently, and so the prospect of a slowing economy and higher inflation will haunt the bond market even as it rallies on the outlook that more interest rates are coming as an economic stimulative. No wonder, then, the iShares Lehman TIPS Bond Fund ETF (NYSEARCA:TIP)(a proxy for inflation-indexed Treasuries) is up more than 4% in the last three months, more than double the gain for bonds generally, as per the iShares Lehman Aggregate Bond Fund ETF (NYSEARCA:AGG).
There is no doubt that we'll all be keeping a close eye on the incoming economic numbers to figure out what comes next. All of us are still data dependent, and the forecast calls for more of the same well into the new year.