Suddenly the sun came out… again. New filings for jobless benefits dropped a hefty 27,000 last week to a seasonally adjusted 365,000. It appears that the downward trend in new claims is intact after all. The last several weeks had raised new doubts, courtesy of a modest rise in new claims, but today’s news takes the edge off the worst fears. As always, caution is required for reading too much into any one number for this volatile series. But the trend is far less prone to short-term noise and on that score there’s cheery news in today’s update, as the following charts show.
New claims for unemployment have once again turned down and are near a four-year low. Last week’s 27,000 descent is the biggest weekly fall in a year, which suggests that the labor market healing process, moderate and vulnerable as it still is, continues to roll on.
The fact that exactly one year ago there was a similarly outsized decline in new claims implies that the seasonal adjustment factor for the series may be misleading us. But this charge is softened considerably when we look at the raw, unadjusted figures on a year-over-year basis.
As the second chart below shows, new claims fell last week by more than 20% compared with the year-earlier week–the steepest retreat since February 2011.
The overall message is that the labor market isn’t on the precipice of disaster. The slowdown in job growth reported in the March payrolls report, and a repeat performance in ADP’s estimate of employment changes in April, can’t be dismissed. But today’s jobless claims news is a reminder that it’s premature to say that the labor market is doomed.
The encouragement is timely as it will help us interpret tomorrow’s payrolls report for April from the government. Analysts are expecting a relatively weak rate of growth, which isn’t terribly surprising after yesterday’s ADP estimate for last month. But the jobless claims news holds out the promise that the May payrolls report will show stronger growth.
“The [jobless claims] numbers allay some concern that the labor market is deteriorating,” says Brian Jones, a senior U.S. economist at Societe Generale.
“This offsets the concerns from yesterday’s ADP number,” advises Phil Flynn, a senior market analyst at PFG. “You’re getting mixed signals…It might not be as bad as we were thinking after ADP.”
Overall, the case for expecting moderate growth still stands. The trend has been a bit wobbly lately, and it wouldn’t be a shock to see more of the same in limited doses via the economic news in the weeks ahead. But the weaker-than-expected data was never broad enough, or deep enough to throw optimism out the window.
“The question is where is the trend going forward?” notes Brett Ryan, U.S. economist at Deutsche Bank. “We think the labor market continues to remain healthy and we expect claims to edge lower.”
The bottom line: we’ve yet to see widespread, sustained deterioration in the economic data generally, which suggests that Ryan’s moderately bright outlook sounds about right. The numbers may eventually tell us otherwise, but for the moment there’s no overwhelming case for thinking that moderate growth has been hijacked.