The holiday break in rising jobless claims is over and the lines at the unemployment office are once again growing longer. That’s the message in this morning’s update of new filings for jobless benefits.
Initial claims jumped sharply to 589,000 for the week ended January 17. That matches the level posted for the week through December 20. The bad news is that we’re again at the high point for the cycle so far. Unfortunately, there’s no reason to think that new jobless claims won’t go higher still. Indeed, a reading of other economic statistics far and wide virtually assures that bearish future. Since this data series is considered a “leading” indicator, it also looks like the unemployment rate, which generally lags initial claims, is set to rise further as well.
Adding to the evidence that the momentum in the labor market is still negative, and is likely to remain so for some time, is the latest reading for continuing jobless claims. The update today is through January 10 and relates that we’re now at just over 4.6 million, up 97,000 from the previous week. That puts continuing claims at just under the high for this cycle, set in the week through December 27.
It’s hard to overestimate the relevance of the labor market’s influence for the economy. Much of the fuel for economic growth, starting with consumer spending, is closely tied to employment trends. Wage income, in other words, is the critical element that breathes life into economic expansion. When that economic stimulant is on the defensive, it has far-reaching effects.
No one, then, will be shocked to learn that new housing starts fell again in December at a steep 15.5% seasonally adjusted annualized rate, the Census Bureau reports. New building permits also tumbled, falling nearly 11% in December vs. November. The decline in permits, a leading indicator for the housing sector, continues to speak loud and clear: construction activity in residential real estate will continue to slow.
The forces of recession and contraction, in short, are now in control. As we discussed yesterday, the best current hope for slowing the descent flows from the massive stimulus via monetary policy, which is increasingly being joined by a comparable fiscal effort engineered by Congress and the White House. But there’s no sign yet that the government’s efforts to right the economy is having much, if any effect, although one can argue that the pain would be much worse in the absence of Washington’s aid.
In any case, all eyes are looking for a sign, any sign, that the bleeding will stop. When might that magic day arrive? For clues, Paul Kasriel, director of economic research at Northern Trust, recommends watching the leading economic indicators (LEI). “When the three-month moving average of the LEI quits declining, this will be a strong signal that a recovery is on the horizon,” he writes in a research note earlier this week. “Right now, the LEI are not signaling that a recovery is imminent. But we will make a bet with you. The behavior of the LEI will signal a recovery before the consensus of economic forecasters does.”