'Wacky' volatile: Why you shouldn’t read too much into weekly U.S. jobless claims

On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Julie Zhang, director, North America sales enablement, discussed highlights from the recent U.S. Federal Reserve (the Fed) meeting, China-U.S. trade relations and weekly initial U.S. jobless claims.

New bar to raise rates: 2% inflation, Fed says

Following the conclusion of its two-day policy meeting, the Fed enhanced the forward guidance on interest rates it provided at August’s economic policy symposium, Ristuben said. “The central bank announced that rates will stay near zero until full employment is achieved and inflation has reached 2%, with the caveat that inflation must also be forecasted to moderately exceed 2% for some time,” he explained. Essentially, as part of the central bank’s new average inflation targeting approach, this means that the Fed will allow inflation to rise beyond 2% for a while, Ristuben noted.

In doing so, the Fed is very clearly trying to eliminate any uncertainty around U.S. monetary policy from markets, he stated. “The central bank wants the market to understand that it won’t be an impediment to the economic recovery in any way, and it's doing this by committing to make credit as available as possible,” Ristuben explained.

With this in mind, he expects future market volatility to be driven far more by the COVID-19 crisis than by Fed policy. “At the end of the day, while the world is in a global economic recovery, it’s not an incredibly robust one. This makes the recovery very vulnerable to a lot of factors—first and foremost of which is the course that the coronavirus takes over the next few months,” Ristuben noted.

Could China-U.S. relations deteriorate to 2019 levels?

Shifting to China-U.S. relations, Ristuben said that rising tensions between the two nations in recent months have led many to wonder if conditions could deteriorate to 2019 levels, when both countries were locked in a bitter trade war.

“This is a fair question to ask, as last year’s trade war had a real impact on the economic growth rate of the globe as a whole,” he observed. Ultimately, Ristuben believes that with the U.S. presidential election looming, a massive escalation in trade tensions between the U.S. and China—such as a return to tariffs—is unlikely in the short-term. In addition, with both nations’ economic recoveries in fragile states, the appetite for either the U.S. or China to engage in another full-blown trade conflict is likely much lower, he stated.

“All in all, I believe that the souring relations between the two countries isn’t something for markets to be overly worried about—although it’s still something to keep an eye on,” Ristuben remarked, noting that, historically, the relationship between the world’s top two economies has usually been strained.

Do weekly initial jobless claims tell the full story of U.S. unemployment?

Turning to the latest data on weekly U.S. unemployment claims, Ristuben said that initial claims for the week ending Sept. 12 fell slightly to 860,000, down from 893,000 in the previous week.

While this is a potential signal that the U.S. economic recovery is continuing, he noted that the numbers should be taken with a bit of caution. “Historically, the data surrounding weekly U.S. jobless claims is pretty volatile to begin with. This year, the numbers have been even more volatile—I’d go so far as to say they’ve been wacky volatile, if there’s such a thing,” Ristuben remarked.

When assessing the state of the U.S. labor market, it’s better to look for general trends, he explained. Doing so demonstrates that, overall, both weekly initial jobless claims and the unemployment rate have been declining since roughly mid-May.

That said, Ristuben emphasized that he believes any significant improvement in the nation’s unemployment rate—or economic health overall—is unlikely until a COVID-19 vaccine is available. “Ultimately, the U.S. is in a grind-it-out stage of slow economic improvement, with plenty of vulnerability—but at the same time, there are some green shoots that are visible,” he concluded.

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