It looks like a macro disaster, but it’s not. It’s still unnerving to see last week’s jobless claims soar, but the aftershock of Hurricane Sandy is probably the cause. That implies that new filings for jobless benefits will drop sharply in the weeks ahead and return to levels associated with the slow-growth trend that was interrupted by the weather earlier this month.
Meantime, claims exploded skyward by 78,000 last week to a seasonally adjusted 439,000. If this was a genuine signal of shifting economic conditions, well, we’d be cooked. But there’s no confirming data elsewhere to suggest that the economy fell off a cliff earlier this month. The source for the statistical mischief, in other words, strongly points to Sandy.
Indeed, last week’s unadjusted year-over-year claims total suddenly roared higher with a nearly 30% surge vs. its year-earlier level. The bears may think that they’ve been handed an early Christmas present, but it’s an empty box. The notion that the trend just went from recent history’s modest progress of 10% annual declines for new claims to a collapsing labor market is too far-fetched, even by the standards of an overbaked Hollywood script. Recall that it was just two weeks ago that we were told that private-sector employed had its best month of growth last month since February. There’s still plenty to worry about, but this isn’t September 2008 all over again, at least not yet.
On that note, it’s not surprising that in Florida, where Hurricane Sandy’s roar was relatively muted compared with the Northeast, the jobless claims update for last week looks decent, with new claims falling to the lowest since 2008 in the Sunshine State. Florida isn’t a bellwether for the U.S. labor market; rather, I bring up this data tidbit merely to remind that if you didn’t get caught in Sandy’s path of destruction, there’s a pretty good chance that not much changed in macro terms last week.
But something did change in New York and New Jersey, for instance. “At least a few state labor offices were shut in the prior week so it’s almost as if you have two weeks of claims in one,” explains Ryan Wang, an economist at HSBC Securities. “You have a double whammy this week, where people were filing claims they were unable to previously and individuals unable to work for the storm were filing additional claims.”
“Stepping back from the storm distortions, the economy is growing at about 2 percent,” estimates Ryan Sweet, senior economist at Moody’s Analytics. “We will likely see a step back in job growth … because of Sandy. The economy is just muddling along.”
How soon will claims data return to something appropriate for reflecting the slow-growth climate that still dominates? Hard to say. A week? Two weeks? Or longer? A new storm, remember, is brewing in Washington from the debate over the fiscal cliff. Forecasting faces better odds of success for anticipating the path of meteorological disturbances compared with assessing the potential for self-inflicted macro wounds via the Beltway crowd. For now, however, pay no attention to the latest data point behind the curtain.