There’s still no sign of an imminent recession in the latest numbers for initial jobless claims. New filings for unemployment benefits last week dropped to a two-month low of 374,000 on a seasonally adjusted basis. Meanwhile, the year-over-year change in unadjusted terms posted a roughly 14% decline. There’s a lot of chatter about a slowing economy these days, based on certain indicators. Some pundits have already declared that another recession is fate. But fears that growth has hit a wall appear overblown based on today’s claims figures.
It’s true that new claims have been stuck in neutral in recent months, as the chart below shows. But if the economy was tipping over into a full-blown contraction, jobless claims would be rising consistently. Instead, claims have been treading water.
Looking at seasonally adjusted numbers on a weekly basis may be distorting the true trend, which is why it’s helpful to look at unadjusted claims relative to the their year-earlier levels in search of deeper clarity. By that standard, the trend looks substantially more encouraging. Indeed, as the second chart below shows, new filings continue to fall in the range of roughly 10% a year, with last week’s change logging in at a decline of 13.7%. That’s a sign that recession risk is low, at least for assessing conditions right now.
It’s possible that the claims data is anomalous this time. Heck, you can never really be sure of anything in macro, which no one should confuse with physics. Leaving that caveat aside, it’s noteworthy that the last full month of economic numbers published—May—signals growth. The next chart tracks 14 key leading and coincident indicators (see the bottom of this post for a list), primarily on a year-over-year percentage basis. As you can see, the latest ranking is nowhere near levels historically associated with the onset of recession.
Don’t confuse any of this with looking down the road. But if we’re talking about the majority of key indicators in terms of the latest numbers, and evaluating their signals in an historically relevant context, the odds that we’re in a recession right now, today, this minute are quite low. That implies that the next month of yet-to-be published economic numbers—June—won’t be labeled as the start of a new recession either. Beyond that, the speculative factor increases substantially, which means that all the usual caveats apply. For instance, it’s devilishly difficult to predict how the euro crisis or the U.S. fiscal troubles will fare in, say, September, and how those yet-to-be-determined variables will influence the economy at that point. Considering what might happen is a productive exercise, of course, but it’s also a different kettle of fish than the analysis above.
True, the June ISM manufacturing report was weak, and it may signal trouble down the road for the economy. But as valuable as this indicator is, it’s only one number. And as we all know, any one number can be misleading at times. In fact, you can count on it. There’s no flawless metric. That’s why it’s far more valuable to look at a range of indicators. Even looking at a diversified mix of indicators is never a sure thing, but it’s quite a bit more reliable than making assumptions based on one or two numbers.
On that front, the June data has only started rolling in, and the overall picture so far is arguably mixed at worst. On the negative side is the ISM manufacturing report. But the services counterpart, updated today, shows a more encouraging picture for last month. As the ISM advised in a press release, “economic activity in the non-manufacturing sector grew in June for the 30th consecutive month.”
Meantime, today’s update of the ADP Employment Report for June also suggests that the economy is still expanding. Private sector nonfarm payrolls rose by 176,000 last month, the strongest rise since March and a moderate amount of progress from May’s discouraging number. That implies that Friday’s employment report for June from the Labor Department may surprise on the upside too.
“Jobless claims are a move in the right direction,” Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, tells Reuters. “The drop, combined with the ADP report earlier, suggests the jobs market is not as weak as recent data has suggested,”
Granted, that may be wishful thinking. There’s certainly no shortage of risk factors lurking in the world to keep optimism in check. But if the economy is truly deteriorating, we’ll see it in the numbers. So far, however, there’s no smoking gun.