Downward-leading indicators

US jobs: Context matters. Weekly US jobless claims data aren't usually a big deal. But Thursday's uptick to 500,000 new claims spooked the market. It could be a blip, since newly redundant census workers will claim benefits. But if market pessimists are right, the sense that unprecedented policy moves have failed to generate jobs would be inescapable.

The usually more significant monthly unemployment data for June and July showed substantial overall declines in employment, as temporary government census workers were laid off. As of the July report, about 200,000 such temporary workers remained, so it's not entirely surprising that figures for new unemployment claims ticked upwards in recent weeks.

Nevertheless, the jittery market reaction is somewhat justified by other recent data that confirm further slowing in economic activity. The Philadelphia Federal Reserve's August regional index dropped sharply, and is now well below its average level during the second quarter. While other regional Fed indices have been more upbeat, this suggests that patches of economic weakness may be reappearing.

It is still unclear whether the US is experiencing merely a pause in growth or the beginnings of a second downturn, or double dip. If the latter were to materialise, it would raise serious policy questions. In both fiscal and monetary arenas, the US authorities fought the severe 2008-09 downturn with unprecedented weaponry, involving lowering short-term interest rates close to zero, providing over $1.5 trillion of market support, and increasing the federal budget deficit to a record peacetime level relative to GDP.

If America's economic trajectory in the coming months remains, as it currently appears, weaker than in all previous well-recorded upturns - including in 1933-34 when growth was rapid - that would imply that the chosen monetary and fiscal policies were misguided. Their proponents argue that without them things would have been far worse. But the burden of proof is in danger of shifting against them. With just two more monthly jobs reports to come before midterm elections on November 2, the debate could get nasty.