New Jobless Claims Rise By 10,000 Last Week

Today’s update on initial jobless claims suggests that the recovery is at risk of stalling. Indeed, the April surge in new filings for unemployment benefits warned as much. Although the surge has moderated this month, the data appears stuck in a range that implies weak economic growth at best.

New claims rose last week by 10,000 to a seasonally adjusted 424,000. That’s too high to inspire much confidence that the economic reports in the weeks ahead are poised to impress on the upside. More disturbing is the recent increase in the four-week moving average of new claims. The message here is that the ranks of the newly unemployed have popped higher and that this change for the worse is more than statistical noise.

The numbers haven’t surged to a degree that leaves no possibility for thinking positively. For what it’s worth, the data suggests to your editor that the economy may slow but still manage to avoid a recession. But even that slight bit of optimism is subject to change as new numbers roll in. We’re at a critical juncture—again and small shifts in sentiment and economic trends can unleash big changes.

A cleaner look at what’s at stake is available by reviewing jobless claims on a rolling 12-month percentage-change basis. Because this is a year-over-year comparison, we can ignore the seasonal adjustment and focus on the raw numbers as reported. The benefit of looking at new applications for unemployment benefits in this context is that it strips out any short-term volatility, which tends to be quite high for this series.

The second chart below presents the data in this way and as you can see there’s been a upward trend for about a year. In other words, the fall in jobless claims is lessening. That’s not necessarily surprising. As the post-recession expansion matures, the pace of decline in jobless claims is all but certain to slow relative to the year-earlier figures. But at some point the trend slows too much and reflects an economy that’s at risk of slipping into a new recession. No one’s really sure where that point of no return is, but we’re a lot closer to it now than we were a few months ago, based on the unadjusted annual change in new claims.

The fundamental issue is, of course, jobs. If the 12-month trend in jobless claims continues to inch higher in the weeks ahead, it will cast a dark cloud over the prospects for the labor market, which is at the core of evaluating where the economy’s headed. Indeed, look at the chart above and take note that an early warning of the approaching Great Recession was reflected in the steadily rising 12-month percentage change in new claims. By mid-2008, this series was sending a powerful sign that a new recession was virtually assured. Fortunately, we’re still a long way from such levels. The question is whether this annual measure will continue rising? The margin of comfort is thinning quickly. It doesn’t help that the trend over the past year doesn’t appear friendly, or that the appetite for risk-free assets is on the march again. The influx of assets into the 10-year Treasury, for example, is such that the yield has fallen to 3.13%, or the lowest since last December.

Perhaps the strongest piece of statistical optimism to counter the recent trend in new jobless claims is the fact that nonfarm payrolls have been improving lately. Indeed, job growth in April was the strongest since the Great Recession ended in June 2009, as per NBER. It’s hard to reconcile last month’s encouraging rise in job creation with the recent numbers in new claims. It’s a divergence that won’t continue for long, however. One metric or the other will give way. Any bets as to which one?

The May employment report is scheduled for release next week (Friday, June 3), and so this much is clear: There won’t be a leg to stand on if the private nonfarm payrolls number disappoints in a big way. In fact, nothing short of a large gain on the order of 250k-plus is likely to bring an antidote to the discouraging jobless claims reports in recent weeks.

“There is no doubt the economy has slowed. We will call the first half of 2011 as a soft patch,” says Robert Dye, a senior economist at PNC Financial Services. But it’s too early to throw in the towel, he adds. “We should see growth accelerate in the second half in the 3.0 percent to 3.5 percent area.”

If so, we’re likely to see some sign of improvement in the jobless claims numbers. For the moment, however, that’s still wishful thinking.

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

2 Comments on New Jobless Claims Rise By 10,000 Last Week

  1. Stop trying to limit the damage already. Just say for the vast majority of Americans, things have stayed terrible for a really long time and they haven’t seen any improvement whatsoever. This constant spin of things “aren’t as great as they could/should/might be” is tiresome and has been so since 2007. THINGS ARE AWFUL.

    Bust out the “staglation” and misery index, because with $4/gallon gas and labor participation at lows not seen in decades, well, things are horrific. It used to be we were in a “jobless recovery” – fantastic if a paycheck didn’t concern you (sorry, outside Goldman Sachs market manipulators and politicians, most of us do care). Then we needed 500,000+ new jobs for growth. That was lowered. Then 250,000+ jobs lost/week wasn’t “bad.” Then the politicians, Fed, media, etc. raised it to 300,000+ to manage the spin. Now week after week of NEW claimants at 400,000 and the folks in charge continue spinning and saying it’s not the repeated 400,000 lost, but the long trend (how many months is a “trend” when it contradicts what the media wants to see).

    Unbelievable. That’s 400,000+ people filing for the first time! Do you realize how many people that now brings the total of in the US who are unemployed and undemployed since 2007-2008. But wait, good times just aren’t as great as they could be. What?! I’ll just remember that when I can’t drive anymore, I can’t afford an apartment, any bills, insurance, and companies still won’t hire me (especially after I’m unemployed (great logic HR and American companies)). But things aren’t that bad says Obama and the rest of the circus, the government, international banksters, and media. Now off to enjoy these “times that aren’t great, but not as terrible as they could be.”

  2. These incredible initial UI claim numbers are alarming. Add to this what is taking place at the other end of the jobless journey and it’s far worse than alarming.

    There could NEVER be enough exposure regarding WHY our tainted BLS unemployment rate is dropping. All Americans have a right to know millions of our jobless are systematically dropped from it’s stats and considered out of the labor force. These millions want and need jobs yet our government is pretending they don’t exist for political gain. Millions.

    Transparency? What a joke. Beware of politicians taking credit for something they know has not taken place. The new jobs they brag about represent close to nothing in regards to the BIG picture.

    I resent the false sense of security our leaders are presently projecting to lull Americans into greater consumption at a time when they should be doing the opposite.

    We just got spanked for being over-extended fools. Now, we’re invited daily do it again.

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