by Calculated Risk on 8/23/2007 10:15:00 AM

I don't believe the Fed will cut rates until there is clear evidence of a more general economic slowdown. The Fed's Poole recently 'cited the monthly jobs, retail sales and industrial production reports as key gauges he'll be watching'.

One of the indicators the Fed will probably be watching is the four week moving average of weekly unemployment claims. The average has been moving up slightly in recent weeks, but the level is still fairly low.

From the Department of Labor:

In the week ending Aug. 18, the advance figure for seasonally adjusted initial claims was 322,000, a decrease of 2,000 from the previous week's revised figure of 324,000. The 4-week moving average was 317,750, an increase of 4,750 from the previous week's revised average of 313,000.

Click on graph for larger image.

This graph shows the weekly claims and the four week moving average of weekly unemployment claims since 1989. The four week moving average has been trending sideways for months, and the level is low and not much of a concern.

My view is the two most important areas to watch in the coming months are consumer spending and non-residential investment (especially in structures). To me labor related gauges are at best coincident indicators.