Will the Federal Reserve rethink its decision yesterday to keep Fed funds at just above zero after this morning’s news of a fall in new claims for unemployment last week? Not likely. Initial claims slipped by just 11,000. That’s welcome, of course, but if you’ve been following the soap opera with this data series you know that we’ll need to see something more dramatic before the central bank changes its monetary tune of standing pat.
As of last week, initial claims totaled 448,000, a.k.a. distinctly uninspiring relative to the range for the year so far, as we’ve been discussing for some time. Until we see evidence to the contrary, it seems reasonable to think that the much-anticipated recovery in the labor market is still betwixt and between the end of the recession and the start of rebound.
Presumably the Fed thinks as much, based on yesterday’s FOMC statement:
Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls.
In short, “pace of economic recovery is likely to be moderate for a time,” Bernanke and company advised. So too, it seems, will be the growth in the labor market. But perhaps we’re overly pessimistic. There’s no law that says that clues about the future trend must be telegraphed well in advance in such metrics as initial jobless claims. Yes, this data series has a history of calling the end of recessions well ahead of the fact. But expecting that initial claims will remain a timely predictor at every point in the business cycle is expecting too much. Every predictor fails at some point, which why there’s so much opportunity for opining and disagreement in the dismal science. That fact of life also makes punditry difficult (and at times embarrassing) for those of us trying to see around corners. Is this one of those times? Might employment be poised to surge?
The notion that it might draws support from the rationale that job destruction was unusually steep in the Great Recession, which suggests that job creation will be uncommonly strong. The same reasoning was applied in reverse for evaluating the last several recessions, which were surprisingly mild. So too was the subsequent jump in the labor market. In the 2001 recession, job losses were relatively low in the grand history of the business cycle. As a result, the subsequent recovery in the labor market was also tepid.
If that’s a valid analysis for 2001, the same thinking implies that something more than mediocrity awaits in the labor market’s rebound for 2010 and beyond. Why, then, haven’t we seen any signs of a rebound worthy of the name? Keeping our optimist goggles on, the answer is that the longer we go without seeing a rebound in jobs, the stronger the eventual recovery will be. This is a persuasive argument…unless it’s wrong. At some point it’s time to accept defeat and look for another theory. But not yet.
How will we know the difference? The numbers will tell us, of course, but the truth may end up being a surprise.
You can see what you want to see in the initial jobless claims figures, for good or ill. So it goes when the trend is sitting on the fence. Meantime, nonfarm payrolls are telling us that the recovery has started. But the relatively strong gain in the March jobs report suffers from isolation. Until (and if) a few statistical siblings of comparable strength arrive, the game is still too close to call. A fresh reading on how close arrives next week with the April update on payrolls. Till then, the debate rolls on about whether recent history is dropping useful clues… or setting us up for defeat.