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Claims point to a U.S./Eurozone decoupling

Seasonally adjusted claims for unemployment fell to 381K, their lowest level (with the exception of one week last February, which we now know was purely the result of a seasonal adjustment problem) since July '08. Actual claims, however, rose by 151K to 524K. This is the time of the year when companies begin laying off people that were hired earlier in order to meet the demands of the holiday season. So today's news tells us that actual claims rose by less than is usual around this time of the year. We may see a repeat of this in coming weeks, since actual claims will almost certainly rise by much more going into the first week of January, but maybe not by as much as the seasonal factors expect. Firms may well continue to fire fewer people than usual, because they have already pared staffing to the bone, and that is one reason why corporate profits have been so strong.

In any event, the continued decline in the level of adjusted claims is a legitimate indicator that the economy is on a more solid footing. The labor market fundamentals continue to slowly improve, and that is consistent with a lot of other indicators which point to ongoing economic growth of about 3% or so.

Markets, however, are still very fearful that growth fundamentals are on the verge of deteriorating. Eurozone sovereign defaults are widely thought to be the likely catalyst for a sudden and sharp deterioration in global economic activity, and markets fear that it will be very difficult for the U.S. economy to avoid contagion. No one can say for sure that the U.S. can avoid contagion, but so far the U.S. economy appears to be decoupling from Europe, as Europe slumps but conditions here continue to improve.

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