Jobless Claims Fall More Than Expected; Trade Deficit Falls 10%

      There have been some decent signs in recent weeks that things are at least not as bad as expected-at the minimum, maybe conditions aren't as bad as analysts now think they are. To be sure, it remains an open question how much of this is a belief that the Fed-and God help us-the EU will save is.

     There are certainly no shortage of those making the bearish case for the U.S. economy. At this point I'll take what I can get. Not as bad as expected is a start:

    "The number of Americans filing new claims for jobless benefits fell last week while the trade deficit in June was the smallest in 1-1/2 years, hopeful signs for the struggling economy."

     "Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 361,000, the Labor Department said on Thursday, suggesting a modest improvement in the jobs market."

    "Economists polled by Reuters had forecast claims rising to 370,000 last week. The four-week moving average of new claims, a better measure of labor market trends, rose 2,250 to 368,250."

    http://www.cnbc.com/id/48586620

    We also saw the improvement in the trade deficit, though the question is as always why a trade deficit narrows-there are more and less optimistic explanations for it.

    "A second report from the Commerce Department showed the shortfall on the trade balance narrowed 10.7 percent to $42.9 billion, the smallest since December 2010, as low oil prices curbed imports."

    "That was way below economists' expectations for a $47.5 billion deficit. The petroleum import bill fell as the average price per barrel of crude oil dropped by the most since January 2009."

     These  numbers are no longer distorted by the question of auto shutdowns in July:

      "Last week's report was the first in several weeks not affected by auto plant shutdowns, which caused wide swings in claims in July, making it difficult to get a clean read of the jobs market."

      "The good news is the narrowing of the trade deficit trade deficit due to oil, which is indicating the economy has stabilized at a low level. Sluggish growth ahead, but no signs of recession," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York."

      Again, there is no shortage of those who still see any apparent good news as the glass as half empty, including my good friend WOJ over at Bubbles and Busts. Their reasons may well be sound. Certainly WOJ sounds plausible:

     "Growth from cost cutting and lower yields appear to be reaching their limits just as revenue growth turns south. Without these tailwinds for earnings and multiple expansion continuing, the market is probably much closer to an interim top than bottom. Whether or not earnings will witness a precipitous drop similar to ‘08 remains to be seen and likely hinges on the future stance of fiscal policy (in the US, Europe and China). Regardless, patience remains warranted as far better entry points to the market will present themselves in the next few years."

      http://bubblesandbusts.blogspot.com/2012/08/fading-tailwinds-of-qe-and-cost-cutting.html

     It's tough to argue with WOJ and others who are skeptical about QE and no doubt there is a real confidence that the Fed will save everything. I doubt that right now would be the best time to get into equities.

    Having said that, it seems to me that the U.S. recovery is in a very recognizable holding pattern. The year always starts out decently and then goes down hill in the 2nd quarter, then stabilizes in the 3rd and comes back in the 4th. At this point it's looking very similar to 2011 and 2010.

  I think there's room for optimism. As to WOJ's belief in the fiscal environment, the only hope is to re-elect President Obama and hopefully give him some help in Congress. The real problem in job creation is not the private sector which has been growing  since June,, 2009 but cuts in government spending, particularly the state and local level. This problem could have been rectified if Congress had only passed the President's job bill.

  Let me conclude with Yglesias' reaction:

  "Two pieces of good economic news this morning. One is a fall of 6,000 in the initial jobless claims number. This is a noisy series, but it's been on an improving trajectory for months. The labor market is—very slowly—improving."

   "The other is that the trade deficit narrowed in June on the basis of higher exports and fewer oil imports. I don't fully understand the political economy of this, but U.S. elites seem friendlier to the idea of an export boom than a residential construction boom or a provision of public services boom so any good news on the trade front is less likely to get stomped on by the Fed than other possible forms of good news."

   http://wwwslate.com/blogs/moneybox/2012/08/09/june_trade_report_deficit_narrows_as_jobless_claims_fall.html 

    So Yglesias seems to think that the Fed is less likely to piss on an export boom than other kinds. I know there are some who see a boom in residential housing as problematic as they think it would be more of the same poison that got us here. Ie, the last thing when the private sector is  deleveraging  we need is yet another bubble. Maybe that's the thinking at the Fed which also may be biased against a "Keynesian" stimulus in government spending.