There are two ways to interpret this morning’s disappointing news on jobless claims for last week. One is that the jig is up and the economy’s set for a fresh round of trouble. The other is newly minted confirmation that the post-recession recovery this time really is going to arrive in fits and starts, take longer than usual, and deliver subpar performance for an unusually long time.
We’re still in the latter camp, as we have been for some time, although critics can rightly ask: What’s the difference in these two viewpoints? At the moment, precious little. Until and if we receive more encouraging news on the labor market, and soon, the jig may in fact be up. But not yet, or at least we don’t think so.
Nonetheless, there’s no way to soft pedal this morning’s news on the last week’s tally for new claims for jobless benefits. Initial claims unexpectedly jumped by 36,000 to 482,000 for the week through January 16, the Labor Department reports. That’s disturbing for a number of reasons. Let us count the ways.
First, last week’s increase is the biggest weekly jump in absolute terms since early May. It’s also the largest weekly percentage rise since January. In addition, the increase to 482,000 initial claims last week is slightly higher than the previous peak of 480,000 from mid-December. The trend, it seems, has turned against us, at least for the moment.
The optimistic view is that last week’s surge is still only statistical noise in a broader trend of still-falling jobless claims. Indeed, the thin reed of hope at the moment is basically one of remembering that weekly jobless claims numbers can be quite volatile, up and down. “The trend in employment is still toward improvement,” James O’Sullivan, chief economist at MF Global Ltd., tells BusinessWeek today. “This level of claims is still associated with net declines in payrolls, but the message is that declines are getting smaller and smaller.”
Meanwhile, ABC News today quotes a Labor Department source as saying that last week’s surge was due to “administrative backlogs” that piled up during the holidays. Maybe, but until we see more numbers in the weeks ahead, we really don’t know if today’s news is a blip or a sign of new troubles to come.
Even if the decline in jobless claims resumes in the weeks ahead, as we expect it will, let’s not forget that there’s still a big test ahead for the economy. Having rebounded from the apocalypse of late-2008/early 2009, the challenge now is one of creating and sustaining growth that ends up as a net plus. That’s a much tougher job than printing money. With today’s news, there’s one more reason to wonder if the economy is up to the task.
Meanwhile, the potential for muddled sentiment is lurking. The first estimate of GDP scheduled for release next week (Friday, Jan. 29) promises to create a bullish aura that may be misplaced. It’s not unreasonable to expect a strong fourth-quarter GDP number, although extrapolating that into 2010—particularly in the second half of this year—is still premature if not foolish, as we’ve discussed recently, including here.
Bottom line: it’s still going to be quite a long year. Meantime, the winter just turned a bit colder.