October 18, 2012
Weekly Jobless Claims: A Sharp Turn For The Worse
If you needed another reason to treat weekly jobless claims data with caution in the short term, today’s update aims to please. The unusually large drop reported previously (for the week through October 6) evaporated in today's release, and then some. As I noted last week, any big change in the number du jour for this volatile series requires several weeks of corroborating data before it's safe to make hard and fast conclusions. If that wasn't obvious before, it is now.
Jobless claims surged higher last week to a seasonally adjusted 388,000. That more than reverses the previous decline that looked so enticing for the cause of optimism. As a result, claims have jumped to the highest level since mid-July. Suddenly the case for thinking that this leading indicator is treading water is plausible once more.
If you're looking for dark signs, there's a bigger monster in today's data. The year-over-year percentage change in unadjusted claims numbers inched into positive territory last week for the first time in over a year. The burning question, of course, is whether this too is noise, or an early signal of deeper trouble in the weeks and months ahead? The only reliable answer at this point is that no one really knows. But this much is clear: If jobless claims continue to rise on a year-over-year basis, we'll have a genuine reason to worry. If the trend rolls on, the next step would be to look for confirming signs of weakness in other indicators.
Those tasks are for the days ahead. Meantime, let's review what we know so far. September generally was a positive month for a broad set of indicators, as I discussed yesterday. In turn, the case for expecting a stronger pace of growth for Q3 GDP growth (scheduled for release on October 26) vs. Q2's weak rate is credible... to a degree. But that's all about assessing recent history. By contrast, the question before the house in light of today's report is how Q4 is shaping up? More specifically, will the October data reflect a new round of weakness that's not apparently in the September profile? With minimal numbers for October to evaluate, it's an open question that must remain highly speculative for now.
That said, today's disappointing update on claims is one data point that must be weighed against a broad set of relatively positive numbers from other corners of the economy, albeit for the previous month. Given the potential for large revisions and high short-term volatility in weekly data on unemployment filings, it's best to reserve judgment. But the stakes are now a bit higher. If next week's claims report again shows that the year-over-year change in this series is rising, and today's annual gain survives the revision process, it's going to get tougher to dismiss the numbers as noise.
Keep in mind that the last time that new claims spiked into positive territory on an annual basis in unadjusted terms—April 2011—it was a one-time weekly event that quickly faded. The economy, in fact, continued to muddle forward with slow growth afterward. A repeat performance next week with claims data falling would be encouraging. Will it happen? Tune in next week for the answer….
Posted by jp at October 18, 2012 9:27 AM