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Claims continue to decline

The above chart compares the unadjusted claims data from this year to the same dates last year. Claims in recent weeks are running about 10% below claims from the same date last year. June claims typically rise because of temporary retooling layoffs at auto plants.

The number of people receiving unemployment compensation is down 21% from the same time last year, a trend that has been in place for more than three years. As I've been saying repeatedly, this is one of the biggest and most positive changes on the margin in today's economy, since it involves changing the incentives of millions of people—encouraging them to find and accept a job offer. 

This chart shows the seasonally adjusted level of claims, which are down 10% from year-ago levels.

Claims data is timely and not subject to significant revisions, and so far there is no sign of any deterioration in the health of the economy or the jobs market. This has major implications for those who hold cash in anticipation of a deterioration in the economy. Given the almost zero yield on cash and the much higher yields available in alternative investments (see chart below), holding cash as a hedge against a weaker economy is an expensive proposition—and so far a losing one.

As long as the economy fails to deteriorate, the prices of risk assets are likely to continue to rise as the world attempts to reduce its (relatively large) holdings of cash in favor of higher-yielding investments.

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