November 8, 2007
JOBLESS CLAIMS FALL AGAIN, BUT...
The scent of recession may be in the air, but it's not yet creating a stink in jobless claims.
New filings for jobless benefits fell last week to 317,000, the lowest in a month, the Labor Department reported. As you can see from the chart below, the trend doesn't look particularly ominous. In fact, it looks quite middling by the standard of recent history.
The future may bring darker trends, but for the moment the status quo prevails. In fact, it's not too hard to find an economist who'll tell you that initial jobless claims running consistently below ~330,000 a week suggests a bubbling U.S. economy. And while we're looking at trends, let's not forget that initial claims have now fallen for three weeks running.
"It's still consistent with a moderate expansion of the labor base." Richard DeKaser, chief economist for National City Corp. in Cleveland, told Reuters today.
But let's not get too excited. Jobless claims numbers not necessarily dispense timely warnings far in advance. Going back to the last time Wall Street and the economy ran into trouble, it's worth remembering that initial jobless claims stayed calm long after the stock market bubble burst in March 2000. It wasn't until December of that year and into the first quarter of 2001 that jobless claims reflected the dangers that had been brewing for some time.
Of course, every economic challenge is different. The troubles stalking the economy these days are of a slow-moving variety. The on again/off again nature of the current creeping threat can all too easily lull investors to thinking that the storm has passed. Indeed, investing perspectives have been whipsawed in recent months. Rest assured, more of the same is likely.
"Any major changes in hiring and firing may not be seen for a few more months,'' Joel Naroff, president of Naroff Economic Advisors told Bloomberg News. "The full impact of the housing losses on financial firms and their reactions to their lower earnings are still to be felt.''
In any case, initial jobless claims aren't the only statistic in town. Competing with the encouraging news from the Labor Department is the increasing gloom in the retail sector. As earnings reports fall short of forecasts, the trend in spending seems headed down. "Overall, the sales trend continues to slow," Ken Perkins, president of RetailMetrics LLC, said today via
AP. "I think the consumer is certainly feeling the (economic) pressure heading into the holidays."
Any one number may or may not confirm the broader trend on any given day. But no matter the statistic du jour, it's getting harder to see how the economy evade a slowdown this time. And therein lies opportunity. Once everyone buys into the idea that the economy will weaken, the expectations will be lopsided once more. At some point, strategic-minded investors should be putting cash to work. Not yet, and perhaps not for some time. There's more bad news to come, of that we're sure.
Gauging maximum pessimism is more art than science, of course. The good news is that you don't have to call a bottom precisely in order to profit from it. But for now, patience.
Posted by jp at November 8, 2007 9:06 AM
Initial jobless claims data, like all economic statistics, are imperfect and biased in some way. Generally, however, the imperfections are more or less constant, although they evolve. The point is that while we have to take the jobless claims numbers with a grain of salt, the general trend is still valuable. If there's an upturn or downturn, for instance, that's significant.
Separately, the government also reports continuing claims, which offers another measure of the job market that tracks longer-term unemployment trends.
Posted by: JP at November 12, 2007 8:24 PM
Correct me if I am wrong, but isn't there now a time limit on how long you can collect unemployment? What happens when you are no longer eligible? Are you dropped from the totals?
If so, would this make using this data questionable for evaluating the true state of employment? ... for historical comparisons?
Posted by: Chrisbo at November 11, 2007 10:33 AM