Today’s weekly update on initial jobless claims is a blow-out bullish report. It may be a game-changer, although let’s see how the revisions to the data go over the next several weeks. For now, let’s simply recognize that new filings for unemployment benefits dropped a whopping 31,000 to a seasonally adjusted 292,000—the lowest since 2006! It could be the result of a glitch in reporting, as Bloomberg notes. But for now let’s leave that aside and consider the data as reported, keeping in mind that next week we could see the numbers run up again.
Taking the numbers at face value, it’s clear that the labor market is healing, and perhaps in a big way. Yes, we could see upward revisions to today’s report. I expect no less. Don’t forget: this is a volatile series in the short run–even before revisions and computer glitches in two states that may have left us with an artificially low number. As such, the standard caveat applies: Don’t read too much into the latest data point. That said, the dramatic fall in claims last week is unusually steep. Nonetheless, even assuming revisions down the road, it’s clear that the trend that’s been conspicuous for some time is still with us, and perhaps in a stronger degree: companies are laying off fewer workers through time. That’s a sign that the economy continues to grow. Meanwhile, the odds that we’ll see a higher rate of jobs creation in the near term future just went up a bit, perhaps a lot. Then again, next week’s update will reveal if there’s any legitimacy to that view.
Caveats aside, another big positive in today’s report is the fact that the year-over-year change in new claims continues to drop on an unadjusted basis. As the next chart shows, last week’s change isn’t an artifact of seasonal adjustment, although it may be a victim of a reporting glitch. In any case, the 24% decline in claims last week vs. a year ago is the biggest decrease in over two years. The message, of course, is that layoffs truly are declining by more than a trivial degree (assuming that future revisions don’t reverse the good news to any great degree).
At the very least, today’s report strongly suggests that the labor market isn’t headed for a new round of headwinds, even though last week’s August payrolls report suggests otherwise. Nonetheless, I’m now a bit more confident that the weak number for jobs growth last month will be revised higher, as implied by my much-stronger econometric forecast relative to what the Labor Department reported for private payrolls. The fact that the year-over-year growth in payrolls has remained fairly steady also suggests that the weak monthly comparison in August doesn’t reflect the trend. Today’s encouraging jobless claims news only strengthens the the case for assuming that the rate of growth for payrolls will perk up in the months ahead.
Overall, it’s fair to say that the bearish analysts who’ve been predicting dark skies for the business cycle this year have taken another heavy blow. In fact, there’s been compelling evidence all along for arguing that moderate growth would prevail generally, as shown by The Capital Spectator’s monthly updates of the US Economic Profile. In the August edition, for instance, recession risk remained low. Today’s jobless claims report (for now) strongly suggests that we’ll see more of the same when I update the US Economic Profile next week.