Jobless Claims Hit 8-Year Low, but Here's Why You Shouldn't Be Excited
Updated from 10:38 a.m. ET with comments from The Lindsey Group's Peter Boockvar
NEW YORK (TheStreet) -- Weekly jobless claims dipped to an eight-year low, but few investors are popping the champagne.
The U.S. Labor Department on Thursday reported that claims for unemployment insurance for the week ended July 19 dropped to 284,000 from the prior week's 303,000 total, easily beating economists' consensus forecast and hitting the lowest level since before the 2008 financial crisis.
Coupled with the recent lows in weekly claims, the economy has witnessed strong nonfarm payroll reports that have surpassed 200,000 jobs each of the past five months.
But the improving labor data hasn't triggered a surge in economic growth.
"Jobless claims have fallen to this level because companies have put off firing people," Lance Roberts, chief economist at StreetTalk Advisors, said in a phone interview from Houston. "Companies aren’t laying off anybody and they're only hiring people to meet the demand of population growth."
In other words, Roberts is saying that companies aren't hiring due to an increased market demand for goods and services.
The International Monetary Fund on Wednesday decreased its 2014 U.S. growth forecast to 1.7% from 2%, which suggested that the international organization doesn't think the U.S. will offset negative first-quarter GDP -- a 2.9% economic contraction -- that resulted from a severe cold winter.
The improving labor data in the face of a slow recovery, though, puts the Federal Reserve in a tough position as it anticipates the end to its economic stimulus program by October and raising interest rates for a significant amount of time after that.
"It's good for the labor market ... but what it does mean is the noose around the Fed is tightening and, to me, you have to keep your eye on the 2-year [Treasury] yield," Peter Boockvar, chief market analyst at The Lindsey Group, said in a phone interview from New York.
Boockvar said the move in the two-year Treasury yield is the market place beginning to "call out" the Fed. Boockvar said the Fed may be forced to raise the federal funds rate before the end of this year, which he said a hurried decision could hurt the economy.
Investors will have the opportunity next week to see how much the economy rebounded as the Bureau of Economic Analysis will report second-quarter GDP. That report will be followed by the July nonfarm payrolls report on Aug. 1.
-- Written by Joe Deaux in New York.
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