Jobless Claims Rose Last Week but the Trend is Still Favorable

New filings for jobless benefits jumped by 18,000 to 409,000 on a seasonally adjusted basis in the final week of 2010, according to this morning’s Labor Department update. That’s a bit of a disappointment after last week’s news that initial claims dipped below 400,000 for first time since the summer of 2008. But it’s hardly time to throw in the towel on expecting better days ahead for the labor market.

One reason for optimism is that weekly claims are still trending lower overall. The four-week moving average of jobless claims is now at its lowest level since late-July 2008 (see red line in the chart below). The media usually focuses on the latest weekly figure, and so today’s update may look distressing to a general audience. But the initial claims series is volatile and so any one data point should be viewed skeptically, particularly when we’re talking of the Christmas and New Year’s holiday weeks. The longer-term trend is far more relevant, and that standard still implies that a modest improvement in the labor market is unfolding.

Yesterday’s surprisingly good news in the December ADP Employment Report suggests as much. So too does the broad macro trend. The proprietary U.S. economic index published in The Beta Investment Report tracks 18 indicators, with an emphasis on leading indicators. November is the last full month with data for all 18 metrics. The percentage of those indicators rising on a monthly basis reached its highest point in November since the previous spring, suggesting that there’s a bit more strength in the economy these days.

Nonetheless, the recovery is still precarious. Jobless claims running in the 400,000 range on a weekly basis is hardly a sign of a strong economy. It’s still debatable if the labor market is headed for a higher level of sustainable growth. Perhaps we’ll find more clarity in tomorrow’s employment update for December from the U.S. Labor Department.

Meantime, the risk of expecting too much too fast can’t be dismissed. “There has been a steady decline in new filings,” observes Patrick O’Keefe, director of economic research at the tax firm J.H. Cohn via TheStreet.com. “But the reduction in continuing claims has not been significant enough to suggest that hiring is really robust. That said, we are down half a million [in continuing claims] since Labor Day, which is not insignificant.”

Omair Sharif, an economist at RBS Securities, tells Bloomberg that “the recovery in the labor market is continuing to move along at a gradual pace.” That implies that “employers are getting to the point where they are becoming a little more confident about the strength of the recovery.”

Will tomorrow’s payrolls update for December juice confidence further? Stay tuned.

About James Picerno 894 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

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