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Ongoing improvement in the jobs market

The three-year downward trend in seasonally adjusted unemployment claims continues, as shown in the top chart. New claims for unemployment are down more than 10% from the same period last year, and relative to the size of the labor force, claims today are lower than at any time prior to 1997. As the bottom chart shows, the number of people receiving unemployment insurance continues to fall as well: there are 15% fewer people "on the dole" today than at this same time last year. The number receiving "emergency" claims has fallen by more than half (over 3 million people) since the high of early 2010. There is undeniable progress being made on all fronts.

As the pace of layoffs approaches levels that are about as low as they are likely to get, it is very difficult to believe that the pace of hirings won't continue to increase.

And with no sign whatsoever of any increase in claims or any deterioration in the jobs market, it is also very difficult to believe that the economy is on the verge of another recession.

Should another recession happen, however, it would almost surely be very mild, because employers have done just about all the cost-cutting they need to do. The economy has spent the past three years adjusting to a huge oversupply of housing and a big increase in energy prices, by shifting resources massively away from residential construction and into new areas such as the booming oil and gas industry. What other shocks might we have to adjust to? Shocks always come out of the blue, so it's hard to rule them out at this point, but we've all been subject to shocks of one kind or another in the past four years, and markets are still priced to grim conditions, as evidenced by today's 2.3% 10-yr Treasury yield, and below-average PE ratios despite record-high corporate profits. When you're braced for the worst, it's easy to deal with minor setbacks. In short, I think the economy is far more likely to continue to improve than it is to suffer renewed deterioration.

Anecdotally, I'm hearing that mortgage originators have seen a big increase in new applications in the past week or so, which if true, is likely a response to the recent uptick in the 10-yr Treasury yield. A "buy now before mortgage rates go higher" mentality may have been triggered. I'm also seeing scattered reports that housing prices in several areas of the country appear to be on the rise.

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