June 21, 2012
Jobless Claims Fell Slightly Last Week, But Stagnation Prevails This Year
Initial jobless claims slipped by 2,000 last week to a seasonally adjusted 387,000. That's enough to put a lid on fears that the economy's falling off a cliff now, today, this minute. But today's update also falls well short of inspiring confidence that stronger, sustained growth will quickly resume. Nonetheless, it's still hard to make a case that a new recession is imminent based on the latest numbers.
It's clear, however, that the downward trend in jobless claims has slowed if not stalled. As the chart below shows, new filings for unemployment benefits have stagnated at roughly the 370,000-to-390,000 level. Confirmation arrives via the four-week moving average of new claims, which rose last week to the highest level since last December. We can call it a rough patch, a slowdown in the recovery, or a prelude to another recession. But whatever it's called it's undeniable that the labor market's expansion has slowed. That's old news, of course, to anyone who read the monthly employment report for May. The recent trend in jobless claims suggests that more sluggish jobs reports await.
Figuring out exactly if a sluggish labor market is temporary or the advance warning of a new economic contraction is tricky, but it still appears as though there's a cushion between slow growth and recession. Consider the rolling 12-month percentage change in jobless claims (in unadjusted terms). As you can see from the second chart, new filings are still falling on a year-over-year basis. History tells us that this annual comparison would be rising steadily in the early stages of an economic downturn. Fortunately, new claims are still falling with year-earlier comparisons, which suggests that the economy is still growing, if only modestly.
Even so, analysts are worried. “Momentum is slowing,” advises Ryan Wang, an economist at HSBC Securities USA. “Companies have curtailed demand for labor. This means less income growth. That’s a restraint on consumer spending.”
"This confirms the weak labor market we have," says Sam Bullard, a senior economist at Wells Fargo Securities. "I suspect we would see a modest rebound in payrolls in June but it would still be below 150,000. It's going to be another month of sub-par jobs data."
Will that be enough to tip the economy over the edge? Maybe, maybe not. But if we're headed for another recession soon, it'll soon be obvious in jobless claims and other economic indicators. Based on the numbers in hand to date, however, we're still not at the tipping point. As I discussed earlier this week, a broad ranking of 14 leading and coincident economic indicators (including jobless claims) remain in positive territory by a comfortable margin. Granted, this ranking only reflects the published numbers through May.
Will June's data deliver more ominous readings? Maybe, although today's jobless claims numbers suggest otherwise. Slow growth is a problem, and if it persists it'll deteriorate into a slump. But for the moment, that risk isn't imminent. Looking further out in time is another matter. In any case, let's distinguish between reading the tea leaves that are in front of us vs. forecasting. Each type of analysis is useful, but no one should confuse one with the other.
Posted by jp at June 21, 2012 9:19 AM