Initial jobless claims come out Thursday morning as they do every Thursday morning. Economists are expecting a figure of about 375,000. Any number significantly better helps President Obama make his case that the employment picture is improving. Any number significantly worse bodes well for Mitt Romney.
I delved into this matter in my July 19 posting. In that posting I showed that initial jobless claims have been improving significantly ever since they peaked in early 2009. I also pointed out, however, that the employment participation rate has been deteriorating. In fact, it is at a 30-year low. Some observers have said this is because of the baby boomers retiring. There is some truth to that. Unfortunately, that explains only part of the story. The bulk of the decline in the participation rate is due to large numbers of people simply dropping out of the workforce due to an inability to find jobs.
I have also discussed in the past why the stock market has been rallying even as the economy has been struggling. The bottom line is the Fed. The Federal Reserve has been pushing an easy monetary policy. Each time the Fed announces another round of quantitative easing, stocks rally. In a bit of twisted logic, however, stocks sold off on Tuesday in part because more investors are starting to believe that Mitt Romney may actually win the presidential election. Investors seem to believe that Romney will be better than Obama for the economy in the long run; but in the short run a Romney victory might mean an end to the Fed's easy monetary policy. Romney has already said he would not reappoint Ben Bernanke as Fed Chairman. He will likely replace Bernanke with someone who is more hawkish. That could be bad for stocks as interest rates rise back to what are considered normal levels.
The election is still a toss up. What is clear, however, is that stock market volatility is rising. It still makes sense to invest for the long run. You should, however, be prepared for some severe gyrations.