There’s good news and bad news in today’s economic reports. In the labor market, initial jobless claims dropped a hefty 26,000 last week—the biggest weekly decline since July—to a seasonally adjusted 359,000. That leaves new filings for unemployment benefits close to the post-recession low of 352,000 from the week ending July 7. But this encouraging news is marred by a steep drop in durable goods order for August. Does one data set trump the other? That’s to be determined in the weeks ahead as more numbers roll in. Meantime, there are two newly minted data points to consider, each one contradicting the other in rather stark terms. The macro truth will out, and probably quite soon. Meantime, today’s menu of statistics offer a choice: darkness or light.
Daily Archives: September 27, 2012
The New Abnormal Is Back (Actually, It Never Left)
Surprise, surprise—stocks and inflation expectations are down. Together. Again. Surprised? You shouldn’t be. This abnormal relationship has prevailed for most of the past four years, from roughly that period of economic infamy when a certain investment bank was allowed to collapse and the linkage between markets and macro has been skewed ever since. I call this the new abnormal—the unusually high positive correlation between changes in the stock market and inflation expectations, as defined by the 10-year Treasury’s yield less its inflation-indexed counterpart. Whatever you call it, it’s still with us, and it’s a sign that the crowd still craves higher inflation. That’s likely to prevail until something approximating “normal” returns to the economic landscape. Meantime, the new abnormal rolls on.