Kamis, 07 Maret 2013

Still no sign of a recession

Weekly claims for unemployment continue their downward trend, and announced corporate layoffs remain low. These two indicators strongly suggest that the economy continues to avoid another recession; their is no apparent deterioration in the labor market. Indeed, it is still the case that conditions are improving: the number of people receiving unemployment insurance is down 22% from a year ago. There are 1.5 million fewer people "on the dole" today than there were a year ago, and those people have an added incentive to look for and accept a new job.

As long as the economy avoids a recession and continues to grow, albeit relatively slowly, the rationale for holding large sums in safe, conservative assets (e.g., cash, cash equivalents, and short-term Treasury securities) becomes weaker and weaker. On the margin, more and more people are going to want to reduce their holdings of low-risk assets and increase their holdings of risk assets; this shift in the appetite for risk is a large part of what is driving riskier asset prices higher these days.

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