Last week’s new jobless claims dropped by a strong 19,000 to a seasonally adjusted 457,000, the Labor Department reported today. That’s a welcome change, but it’s too early to say if this is the start of a new round of declines or just more statistical noise of bouncing around in a range. If recent history is a guide, prepare yourself for the latter.
New weekly filings for unemployment benefits have been meandering between 450,000 and 500,000 so far this year. The implication: the recovery in the labor market has hit a rough patch. Recent economic news doesn’t offer much reason to think that’s a material change for the better coming in the immediate future. For example, yesterday we learned that new home sales crumbled by a third in May to a record low annual pace of 300,000. “We’re going to see a home-sales air pocket after the end of the tax-credit stimulus,” said Richard DeKaser, the founding economist at Woodley Park Research told Bloomberg News. “That means housing will be a drag on third-quarter economic growth.”
New orders for durable goods also fell last month, slumping 1.1% in May, the Census Bureau reported this morning. The drop follows five consecutive monthly increases, which suggests that a correction was due. As for the cause of last month’s decline, it was lead by a drop in orders for commercial aviation. But that’s a volatile sector and if we ignore aviation, durable goods orders advanced in May by nearly 1%.
Nonetheless, there are still concerns about the strength of the economic recovery. “In the last month or so, we’ve seen a little bit of softening or cooling in the pace,” Michelle Girard, senior economist at RBS, told Fox Business News. “We’re rising, but the numbers don’t show us rising as quickly. But it’s a far cry from losing some upward momentum to double-dipping. I think that’s where people have gone too far.”
Maybe. Next week promises to be a test of optimism with the arrival of updates on personal income and spending on Monday, followed by Friday’s employment report for June. The May jobs report was largely a disappointment. A repeat performance would raise serious doubts about what comes next. On the other hand, a surprisingly strong report might be enough to convince the crowd that the double dip risk was overblown. Place your bets…