This morning’s weekly update on new jobless claims delivers a refreshing reversal of last week’s surge in filings for unemployment benefits. New claims on a seasonally adjusted basis dropped by a hefty 37,000 last week, more than erasing the revised 30,000 jump for the week through January 8.
That puts us back within shouting distance of the cyclical low of 391,000 from Christmas week. The case for optimism is revived once again. Yes, we’re getting whipsawed here, but that’s typical with this data series. That inspires looking at a smoothed version of the numbers via the four-week moving average. On that score the trend is still encouraging, albeit with reservations. As the chart below shows, the four-week average is only a hair above its low from a few weeks ago.
Deciding if the glass is half full, or half empty, when it comes to divining the next big move in job creation (or the lack thereof) is as much art as it is science. But for those who read the tea leaves, the case for thinking positively isn’t beyond the pale. “The preconditions for stronger hiring are in place,” Ryan Sweet, a senior economist at Moody’s Analytics tells Bloomberg. “Strong corporate profit growth, improvement in business confidence and signs that the recovery has reaccelerated should really begin to entice businesses to hire a little more aggressively.”
Maybe, but we’ll need to see some hard evidence in the payroll numbers before jumping on this bandwagon. So far, the best you can say about job creation is that it’s been modest and ongoing. Private sector payrolls gained on a net basis in every month last year, and that’s something. But it’s not enough to make a serious dent in the 9%-plus unemployent rate any time soon. Payrolls are moving in the right direction, but in the grand scheme of the U.S. economy it still looks weak. And that means job growth is still vulnerable. Last month, for instance, private payrolls increased by 113,000. At that pace, it’s hard to forecast much more than a continuation of what we’ve had in recent months: a sluggish labor market recovery.
Today’s jobless claims report doesn’t do much to change that view, although it does keep hope alive.
“The trend of the last three [in jobless claims] months is clearly downward,” says Christopher Low, chief economist at FTN Financial via Reuters. “The pace of layoffs is clearly lower.” But there’s still the lingering problem that’s plagued the recover from the start, as low reminds: “Hirings are still frustratingly slow.”