Diane Swonk, Chief Economist
August 12, 2010 – 8:05 a.m. CT
Unemployment Claims Rise AGAIN
Initial unemployment claims rose to 484,000 from an upwardly revised 482,000 the week prior. Distortions created by the timing of vehicle plant closures and the extensions to unemployment insurance no doubt contributed to the rise.
Moreover, continuing claims edged down somewhat, which represents a sliver of good news. The continuing claims series is highly volatile, however, and I wouldn't take too much solace in it.
Going forward, the $26 billion in transfers to the states approved by Congress last week will help to re-hire teachers and bring claims down a bit in the weeks to come.
That said, the employment situation remains dismal almost any way that the data is cut. Real GDP growth, in particular, remains too weak to generate much in terms of jobs.
Implications for the Fed: I fully expect the Fed to move more aggressively to stimulate by their next meeting. The Fed chairman, Ben Bernanke, is slated to speak at the Kansas City Fed's Jackson Hole, Wyoming conference on August 27. He could use that opportunity to lay out how aggressive the Fed could get in purchasing assets in that speech.
How much can the Fed buy? Their balance sheet peaked at close to $2.5 trillion, which is a good $300 billion below where we are today and they could go higher.
Will it help? It actually could, and frankly, if I was sitting on the Fed, I would be willing to try rather than knowingly risk a double-dip. We not only failed to stimulate enough during the Great Depression, but actually made conditions worse with more contractionary than expansionary policies, especially at the Fed. Ben will not have this Fed being accused of doing the same, and for that, I am thankful and a bit hopeful.
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