Today’s update on new filings for unemployment benefits in the US provides upbeat news in the wake of yesterday’s disappointing release on private payrolls for March via the ADP Employment Report. Whereas the ADP data point to a slowdown in the labor market’s growth rate, today’s initial jobless claims figures suggest the opposite. Indeed, claims unexpectedly fell a hefty 20,000 to a seasonally adjusted 268,000 for the week through Mar. 28 — close to a post-recession low. If there’s trouble brewing in the labor market, there’s no sign of it in today’s claims data.
The fact that claims dropped by a healthy 18.5% last week vs. the year-earlier level suggests that the economy’s positive momentum, although battered lately, is still alive and kicking. Although claims data looked worrisome for a time in February, today’s results build on recent updates and tell a tale of a labor market that’s returning to a convincingly positive trend of robust growth.
“Everything is still good on the labor market front,” Tom Simons, an economist at Jefferies LLC in New York, tells Bloomberg. “One element of the economy that isn’t reflecting the weakness seen elsewhere is the job market. It indicates consumers will have more purchasing power and thus should be able to increase consumption.”
How, then, does one square today’s release with yesterday’s comparatively weak ADP numbers? Perhaps the claims data is misleading us and today’s good news will be revised away in coming weeks. Alternatively, it’s the ADP report that’s due for a bullish update down the road. Perhaps tomorrow’s official jobs report from Washington will sort it all out for us.
Meantime, keep in mind that diverging views are in vogue these days when it comes to economic updates. Yesterday’s ISM Manufacturing Index for March slumped to its lowest level in nearly two years. Although the latest reading of 51.5 still indicates growth, this widely followed benchmark continues to move closer to the neutral 50 mark that separates growth from contraction.
The ISM trend is troubling, but Markit’s competing purchasing managers index (PMI) for manufacturing paints a much brighter outlook. Indeed, yesterday’s revised numbers for March, which ticked up to 55.7, reflect the “sharpest improvement in US manufacturing business conditions for five months,” Markit noted.
It seems that you can make a convincing case for optimism or pessimism when it comes to the US macro trend by carefully selecting the data set that supports your bias. Eventually, the truth will out. Meantime, it’s reasonable to assume that reality lies somewhere between the extremes. In short, the case for moderate growth still looks like a prudent forecast based on a broad review of the numbers.