Threats To the Economy Averted

Two significant threats to the economy are receding, although the recovery still has a long way to go. One of the threats was the specter of deflation – which has not occurred since the 1930s – now belied by the 0.3 percent inflation rate reported for August, and driven primarily by rising food and energy prices, according to the Bureau of Labor Statistics. The second is that another round of mass layoffs looks unlikely now, given the third drop in jobless claims in four weeks.

First-time applications for unemployment benefits fell by 3,000 to a seasonally adjusted 450,000 recently, the lowest level in two months, according to the Department of Labor.  In Illinois, for example, the unemployment rate fell to 10.1 percent in August, the eighth straight month that the rate was steady or declined.

Chris Rupkey, an economist with Bank of Tokyo-Mitsubishi UFJ, described August’s spike in unemployment claims a “false alarm.  The labor markets are stable and companies are not increasing layoffs.”  David Resler, chief U.S. economist at Nomura Securities agrees, noting that the August spike likely resulted from temporary census jobs that came to an end.