September 20, 2007
DOES THE DIP HAVE LEGS?
The August employment report, which posted the first monthly job loss in four years, is considered the leading smoking gun that convinced the Federal Reserve to cut interest rates on Tuesday. The worry, of course, is that a recession's coming. Why, then, is there no confirmation in the initial jobless claims so far this month?
This morning's update on new filings for unemployment benefits through September 15 shows that the trend through September's first half has been unmistakably down. As our chart below illustrates, new filings fell to 311,000 last week. That's the lowest since late July and slightly below the year-earlier level of 322,000.
It's too soon to declare that the risk of recession has passed, but today's jobless claims report raises another clue suggesting that maybe, just maybe, the Fed acted a bit too hastily. Indeed, you don't have to look too far to find a dismal scientist to argue that jobless claims in the low 300,000 level is considered normal in the context of an expanding American economy in 2007.
Of course, it would be foolish to read too much into this one number. Next week's report could deliver a stinging reversal of fortunes. Jobless claims are volatile, which is why the smoother four-week moving average offers a somewhat better picture of the larger trend. But as you can see from the above chart, the four-week average is trending down as well.
Ultimately, the true state of the economy can only be known ex post, which is to say after the data's published, scrubbed and confirmed. As such, the definitive word on the economy today will arrive some months down the road. For those who can't wait, the alternative is to look at every number as it comes off the statistical assembly line while trying to keep the big picture in mind. Good luck.
In sum, observers of the economic scene must choose either timeliness or accuracy, but you can't have both simultaneously. Yes, the choice is a thankless task for mere mortals-- and perhaps central banks too.
Posted by jp at September 20, 2007 9:47 AM
In the payroll report there was a very large drop in education employment -- teachers -- and the household survey reported a very large drop in teenage employment.
I suspect both reports stemmed from a poor seasonal adjustment for August and significantly overstated the weakness in employment.
If there is a problem with the seasonals we will see a massive rebound in these two numbers in September that could throw the markets for a loop..
Posted by: spencer at September 20, 2007 11:38 AM