Jobless Claims Drop, Fed Holds
The Fed left monetary policy unchanged at the latest FOMC meeting, which concluded yesterday.
Thursday, October 29, 2015 - 00:00
The statement issued by the central bank was little-changed from the September text, though there were a few tweaks that could be interpreted as pointing to a December rate hike. First, the reference to recent global developments restraining economic activity was dropped, suggesting a level of confidence that the turmoil in global markets leading up to September’s meeting has had no significant effect on the US economy. Second, increases in household spending and business fixed investment were characterized as solid rather than moderate. Third, and perhaps most pointedly, the long-held phrase referring to the question of how long to maintain the current target range for the federal funds rate was modified to an issue of whether it ‘will be appropriate to raise the target range at its next meeting’. This explicit reference to a specific FOMC meeting could be seen as laying the groundwork for lift-off and the minutes from this week’s meeting (released on November 18) could prove to be most revealing.
Nudging in favor of December tightening is progress in the labor market, which is looking as solid as ever when it comes to jobless claims. Last week’s initial claims rose 1000 last week to a smaller-than-expected 260,000, while the week prior was unrevised at an impressively-low 259,000. Claims remain just a few thousand away from the 42-year low which is sufficient to push the four-week moving average down from 263,250 to 259,250, the lowest level seen since December 1973. Continuing claims, recorded with a lag of one week behind new claims, decreased to 2.144 million, some 100,000 better than the corresponding week in September.
Away from the labor market, most other things are not so rosy though. US GDP growth slowed significantly in the third quarter, according to the advance estimate by the Bureau of Economic Analysis. The economy expanded at an annualized pace of just 1.5% in Q3, undershooting the not-particularly-high consensus estimate of 1.7%. Personal consumption expenditures slowed slightly, but were still a strong point for the economy. The GDP price index fell to an annualized rate of 1.2% from 2.1% in the second quarter.
Stocks opened slightly lower on Wall Street, with investors cautious at the mix of uncertainty over the precise timing of Fed tightening and lackluster economic growth. Shortly after the opening bell, the Dow Jones was down 28 points or 0.16%. The broader measure of the S&P 500 Index was down the same percentage at 2086.9.
Oil has enjoyed a strong bounce in the last couple of days. US crude futures advanced 0.96% on Thursday morning to $46.37 a barrel, after leaping around 6% on Wednesday. Though inventory data from the US Energy Department yesterday showed oil stocks rising as whole in the week prior, supplies at the key delivery hub in Cushing, Oklahoma declined, as did gasoline and distillate reserves. Chevron and Exxon Mobil, the oil giants of the Dow Jones, both report quarterly earnings on Friday.
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