What We Learned Last Week
- Applications for unemployment insurance benefits have fallen to the lowest level relative to the size of the labor force that anyone working today can remember. Today’s labor force is twice as large as it was in the late 1960’s and early 1970’s when claims were below current levels. The low level of jobless claims implies that the economy is growing at a respectable pace, regardless of what the Gross Domestic Product (GDP) estimates say. It doesn’t say anything about the level of slack, which is falling but remains somewhat elevated.
What We Expect to See in the Week Ahead
- The Fed meets just before the government releases its first estimate of 2Q GDP growth. Most forecasters estimate that real GDP rose 2.5 to 3 percent annualized. That may appear respectable, but, in truth, would imply that the economy was implausibly weak in the first half of the year in contrast to labor market trends.
- Next week’s July jobs report, which is expected to be solid, will likely move the Fed closer to the moment when it starts to return its overnight interest rate target back to a more normal level.