New claims for unemployment benefits in the US increased last week, but the trend remains encouraging. The consensus forecast told us that claims would post a modest dip to a seasonally adjusted 270,000 in today’s release for the week through May 23; instead, filings jumped to 282,000, the US Labor Department reports. But the four-week average, which is close to a 15-year low, barely budged and the year-over-year change continues to fall at a healthy rate. In short, there’s not much news in today’s update, which means that this leading indicator continues to point to ongoing growth for the labor market.
On a side note, it’s reasonable to wonder if the decline in jobless claims are at or near a cyclical trough. Even under the best of macro circumstances, there’ll always be a certain number of layoffs as workers transition to new jobs, companies rise and fall, etc. Note that jobless claims have rarely dipped below the 300,000 mark in seasonally adjusted terms for very long over the past 40 years. As such, the sight of claims bouncing around at current levels for an extended period wouldn’t be surprising or bearish. In other words, the big move down for claims is behind us—we’re not going to 200,000.
That said, the data still offers an upbeat outlook for the labor market. Claims dropped a bit more than 8% last week vs. the year-earlier level. That’s a softer decline than we’ve seen recently, but it’s still a healthy fade. The bottom line: if you’re trying to rationalize a bearish outlook on the US economy, you won’t find much support in jobless claims figures. Sure, other metrics paint a darker view. But for now, the numbers for payrolls and claims remain positive.
The worst you can say about claims is that the recent slide anticipates the end of the cycle. History advises that recessions begin at some point after jobless claims make a cyclical low. Perhaps that cyclical low was the dip to 262,000 for the week through April 25. But bears shouldn’t get too excited just yet. The gap between the cyclical trough and the start of a new downturn can last years. In the previous trough ahead of the Great Recession, jobless claims touched a cyclical low of 282,000 in late January 2006—three years ahead of the next recession. It’s anyone’s guess when the next downturn will start, or if we’ve even seen the lows for the current cycle.
Meantime, the outlook from a claims perspective remains encouraging. “The firing side of the equation has pretty much run its course in terms of recovering to normal,” observes Jacob Oubina, an economist at RBC Capital Markets. “The unemployment rate should continue to decline and wage pressures on the back of that should firm up.”