Fed Taper Starts Amid Poor Labor Showing

12/19/13 10:38AM EST

Fed Taper Starts Amid Poor Labor Showing Fed Taper Starts Amid Poor Labor Showing

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The labor market in the United States is not in a strong position. When the Federal Reserve decided to forgo quantitative easing tapering in a September meeting, chairman Ben Bernanke said that the central bank would wait for the labor market to improve before deciding to reign in its influence. The Fed decided to taper its bond purchases yesterday, unemployment figures are, however, still damning.

According to statistics released by the Labor Department on Thursday morning, claims for state unemployment benefits increased 10,000 to a seasonally adjusted 379,000. That’s a nine month high, and massively departs form the expectations of analysts. According to Reuters economists had expected the number to fall to 334,000 for the second week of December. The number throws Fed policies into doubt and asks serious questions of the US economy as it heads into 2014.

Unemployment Rise Spooks Investors

Before Wall Street opened the markets this morning, futures in US stock markets fell. The indices rose in the direct aftermath of the Federal Reserve taper on Wednesday. The reaction was unexpected, but showed that the market saw the taper as a mark of confidence in the economy rather than the removal of stimulus. Today’s reaction has changed that take on the outlook for the stock market.

All three of the major US equities futures indices showed declines on Thursday morning. At time of writing the Dow Jones Industrial Average had fallen 52 points to 16,057.00, the S&P 500 had fallen 6.8 points to 1,797.90, and the Nasdaq had fallen 14.75 to 3,493.75. Futures around the world moved in the opposite direction, showing that investors are more optimistic about international stocks in the wake of unemployment problems and stimulus downsizing in the United States.

The Federal Reserve decision to tone down its bond buying program will probably not be changed in January, but the central bank’s ability to make further adjustments to the program is probably restrained by this morning’s data. 379,000 is a lot of jobless claims, and the central bank cannot afford to let the US economy settle into a longer depression.

Federal Reserve Taper Trouble

Taper talk has had such a substantial effect on the economy that the removal of doubt will be a good thing in the minds of many investors. It will not be clear how the market has reacted until next month’s fund flows analysis emerges, but this morning’s stock futures may offer a clue. The rest of the world appears to look more attractive at the end of the year.

When the market opens later today the effect of the unemployment jump will play out on the indices. Whether it is seen as an aberration, as last week’s numbers were portrayed, or a damning take on Federal Reserve policy remains to be seen, but it is clear that its effect n US stock markets is unlikely to be positive. Ben Bernanke will have a lot to deal with over his Christmas break, as will the hundreds of thousands of Americans that find themselves unemployed this holiday season.