Stimulus Checks Can't Offset Weakening Job Market

The stimulus checks may be propping up consumer spending, at least temporarily, but the job market is still weakening.

Initial jobless claims jumped to 404,000 mark last week, up from 388,000 the week previous the Labor Department reports. That's only the second time the 400,000 mark has been passed on the upside in many a moon, the previous instance coming this past March 29 when claims reached 406,000.

As our chart below shows, the trend is clear: new filings for unemployment benefits continue running higher. It's not clear that the stimulus checks will deliver salvation. There are many negatives weighing on the economy, from rising energy prices to the unwinding of various debt burdens, and those ills aren't about to evaporate next week because consumers are receiving checks in the mail for $600 to $1,200.

Reading the writing on the economic wall, Washington is now talking about a second stimulus package.The political inclination to act is understandable, but at some point the correction will have its way. Trying to keep the growth cycle alive indefinitely isn't plausible, nor is it possible--or even healthy. Yes, the past 20 years suggests otherwise, but the pain has simply been pushed forward.

Strong growth ultimately arises from ashes of recessions--a harsh but ultimately accurate fact. Artificially keeping the growth alive in order to avoid recessions risks nipping future growth in the bud. Again, politics calls for no less, but in the end it's not obvious that letting the political mindset run the show is the best long-term strategy for the man in the street. That won't stop Washington from moving heaven and earth to try and re-engineer a more comforting outlook, although the patient may not respond as expected this time.

Comments

[blink0404:]

How to survive in this market- sit back and wait for a sign that the market is recovering; until then hold cash, a safety in this market.

Here's a pretty good podcast on what to do during this market- check it out. www.greenfaucet.com/sh....

One of the main problem is that the classic safeholds in this market: coal, steel, bulk shipping, agriculture- are becoming less safe.

2008 Jul 03 12:03 PM

[Kunst:]

Recessions are like forest fires. The longer you prevent them, the worse they are when they inevitably occur.

2008 Jul 03 01:03 PM

[Jason Rines...:]

I always liked that analogy Kunst. Thanks for reminding of that one.

2008 Jul 03 04:44 PM

[whidbey:]

Yes, will in a political year the political class will not forgo the opportunity to "buy the American people" again. We have been bribed, stewed and tattoo for so long that we no long the presumptions of the political class which thinks of us as lazy evil children who must be sated to continue the plunder of our political future. Throw them all out, now and we might have a hope.

2008 Jul 03 05:38 PM

[whidbey:]

Yes, Whidbey. You are correct. The politicians have abused their power to exploit the taxpayers by buying them off. Giving whiskey to the Indians is not politics but rather, abuse.

2008 Jul 03 05:42 PM