Another update on new filings for jobless claims, another reason to keep the faith.
The Labor Department reports today that initial jobless claims fell 47,000 for the week through July 11 to 522,000, the lowest since early January. The decline is all the more encouraging because it suggests that the hefty fall for the holiday week through July 4 wasn’t a fluke.
We’ve been writing since March that jobless claims have a long history of peaking just ahead of or concurrently with the end of recessions (for some background, see here and here). But we’ve also been careful to note that this time may be a bit different in terms of what it implies for the period ahead.
While jobless claims are predicting the recession’s end, we’re inclined to qualify the finale in this cycle by calling it a technical end. As we explained back in early June, “the technical end of recession, especially one as painful as the current one, isn’t easily forgotten. Indeed, while the leading indicators point to recovery, the lagging indicators, as expected, continue to get worse.” The bottom line, we opined at the time: “Even if the recession is over, and one day it will be, there remains the bigger question: What magnitude of rebound awaits? On that point we remain quite wary. One reason is that if a rebound is underway, the shift implies a new set of challenges lurking in the future, starting with the issue of debt, interest rates and inflation, all of which threaten in the medium- to long-term outlook.”
Meanwhile, it’s not clear that the crowd recognizes the challenges that await, which are unusually potent in 2009 and beyond. A long, extended period of low/flat growth may be coming. Many are celebrating the arrival of the post-apocalypse phase of the business cycle when they should be wary of what threatens to be an unusually long and challenging era in the months (years?) ahead.
Yes, the accumulating numbers seem to tell us that the technical end of the recession is close, if it hasn’t already arrived. By that we mean the NBER may date the cyclical trough as sometime in this year’s second half. But that means less, perhaps a lot less, in 2009 than it has in previous conclusions to recessions.