Weekly filings for unemployment benefits rose 12,000 last week to a seasonally adjusted 282,000, the US Labor Department reports. The jump is well above Econoday.com’s consensus forecast that anticipated a small rise to 273,000. But when you step back and consider the trend, the news is still upbeat. Indeed, the four-week average for jobless claims is still close to the lowest level since the early 1970s. Meanwhile, the weekly tally for this leading indicator continues to fall in year-over-year terms, suggesting that the labor market’s expansion will roll on in the near future. Today’s numbers also provide support for thinking that tomorrow’s August employment report from Washington will offer a fresh round of encouraging news for the economic outlook generally.
The year-over-year decline for claims that’s been in force for several years has slowed lately, but last week’s 7.5% drop from the year-earlier level is still a solid signal of ongoing progress. It’s debatable how much further claims can fall now that filings are near 40-year lows. Even if the economy continues to expand, which is still a compelling forecast, it’s likely that claims will soon start treading water. But in the art/science of interpreting the data for the near-term outlook, it’s clear that there are minimal signs of stress in the labor market. Only when we see claims rising consistently in year-over-year terms will the future look considerably darker by way of this indicator. For the moment, however, the odds are low that such a regime shift is near.
Today’s report strengthens the view that the outlook for the US economy remains positive. The recent market turmoil paints a darker profile, as I noted earlier this week. But the hard numbers for the real economy have yet to confirm Mr. Market’s latest hissy fit and so the broadly positive trend is still set to continue. To be precise, recession risk is low by way of revised analysis of the Economic Trend & Momentum indexes with data published through yesterday (Sep. 2). A markets-only forecast hints at a higher level of business-cycle risk. But until we begin to see confirming messages in the hard economic figures, it’s wise to interpret the market warnings as noise… and a buying opportunity?
To be fair, some projections for growth have turned weaker lately. The Atlanta Fed’s Sep. 1 update of its GDPNow model for third-quarter US GDP, for instance, is looking for a soft 1.3% increase. If accurate, the economy is headed for a sharp deceleration in growth vs. Q2’s strong 3.7% gain.
But in the more reliable game of reading the trend based on published numbers, there’s still a moderate tailwind of growth blowing across the macro landscape. The pace may be on track to slow, but it’s still premature to argue that the economy’s about to fall into the business-cycle ditch. Yes, the markets suggest otherwise, but the recent warnings now look like noise, in part because there’s a solid rebound underway in US equities again this morning.