Brighter Jobs Picture Lessens Recession Risk

Maybe last month's 4,000-job loss was a blip after all, rather than the labor market starting to crack. The Labor Department has reported that initial jobless claims for the week ending September 15 dropped to 311,000 from 320,000, and the four-week average slipped to 320,750 from 324,250. These numbers suggest that the economy is still adding jobs at a clip of about 100,000 a month.

So when I look at those data and add in the fact that the S&P 500, for all the credit market turmoil, is still only a couple of percentage points below its all-time high, it looks less likely that we are headed for a recession, though growth may certainly slow. Here is the real-time take of the well-respected economic consulting firm Macroeconomic Advisers:

The continued turbulence in financial markets remains a major source of uncertainty and downside risk in the forecast. In response to these developments we have marked down our forecast for second-half GDP growth and perceive somewhat greater downside risks even to this downward-revised forecast. We now expect GDP growth of 2.6 percent in the third quarter, slowing to 2.0 percent in the fourth quarter.... We assumed in this forecast that the Federal Reserve would lower the fed funds rate target to 4.75 percent in two quarter-point moves coming at its September and October policy meetings. Slightly weaker near-term growth and increased downside growth risks argued for these two cuts. Instead, the Fed cut one-half point in September. We now anticipate one further quarter-point rate cut at the October Fed meeting.