Is the Fed now underestimating the labor market?

My pal Peter Boockvar’s not a fan of endless ZIRP. His thoughts on this morning’s strong jobless claims report below (emphasis mine):

Initial jobless claims for the week ended July 19^th were 284k, well below expectations of 307k, down from 303k last week and the lowest print since February 2006. While the Labor Department said there was nothing unusual in the data, there are seasonal issues in July around auto plants that typically shutdown and less may have been closed this summer due to good sales. Smoothing this out, the 4 week average fell to 302k from 309k, the lowest since May 2007. Continuing Claims fell slightly but to also the lowest since 2007. Bottom line, while we can’t ignore the seasonal issues in July, the trend in claims continues lower and that is healthy for the labor market in terms of measuring firing’s. The problem though continues to be the Fed which still won’t acknowledge that zero interest rates, let alone QE, are way out of whack with the reality of the economic data. As mentioned, today’s claims figure was the lowest since February 2006. Back then, the fed funds rate was at 4.5%, only to rise to 5.25% by June 2006. This debate will really heat up after QE ends in October and the 2 yr note yield should be a main focus. At .49% today, it’s at a two week on a closing basis and just 4 bps from the highest since 2011.

In a subsequent note, Peter acknowledges the weaker-than-expected new home sales data we got for the month of June – which is clearly a counterbalance to today’s labor market news – but he points to the fact that the real estate data point carries with it a high margin of error.

Source:

Peter Boockvar
Managing Director, Chief Market Analyst
The Lindsey Group LLC