For months, it was treading water. That was bad enough. But now it’s rising, raising fears that it could go higher still. Today’s update on weekly jobless claims shows that new filings for unemployment benefits rose to 484,000 last week—the highest since February.
On a weekly basis, the change was small—a gain of 2,000 on the week, albeit a rise over a modest upward revision in the previous week’s number. The bigger problem is the trend. As the chart below shows, there’s upward momentum where there was a sideways bias previously. Since bottoming at 427,000 weekly claims in mid-July, new filings have risen by 13% through last week.
In the grand scheme of this series, there’s still reason to wonder if it’s all still statistical noise. Weekly claims are a volatile beast and so next week’s number could wipe away months of statistical misery. Yes, anything’s possible. In addition, there’s quite a bit of precedent for these numbers to meander and even rise after the end of recessions, so we can’t say we’re in uncharted territory. But that’s all cold comfort given the recent deterioration in other economic metrics.
It’s been clear for several months now that the markets have been pricing in the risk of new economic weakness and today’s jobless claims report only throws more fuel on this fire. Granted, today’s update doesn’t materially change what we already knew and what we’ve been analyzing on these pages for months: the economy’s hit a rough patch. Still, it’s hardly encouraging to learn that initial jobless claims are inching higher. Ground zero in the economic problems is the spare level of net job creation, and for the moment the outlook is a touch darker than it was yesterday.
No wonder that risk aversion is the new new thing again. One clue is the sharp rise in the dollar yesterday while gold held its ground. The US Dollar Index gained a robust 1.6% on Wednesday while gold remained flat. As we discussed in May, the dollar and gold tend to move in opposite directions. That implies that when they’re both relatively strong, it’s a sign that risk aversion is on the march. True three months ago, true today.
More so at the moment, in fact. What we didn’t know in May was that the labor market recovery would continue to remain sluggish, labor productivity would fall and costs would rise, and the Fed would disappoint the markets at its August 11 FOMC meeting on the issue of raising the bar for fighting the deflationary winds.
You can argue that brighter days are coming, and that’s almost certainly true if you look out far enough. But in the short run the case for optimism has fallen on hard times, and it’s not obvious that the trend is set to undergo a miraculous change for the better any time soon.