This morning’s news that new claims for jobless benefits fell last week is the best news yet for thinking that the recession has peaked. It’s still too soon to break out the champagne, as we’ll explain. But for the moment, a collective sigh of relief is in order. Maybe.
As the chart below shows, new filings for jobless benefits tumbled by 53,000—the biggest weekly drop since December. More important is the trend. Since reaching a seasonally adjusted high for this cycle of 674,000 for the week through March 28, new jobless claims have fallen in each of the subsequent two weeks, lowering the total to 610,000 last week. That’s still an unmitigated sign of recession, but the recent fall also begs the question: Does the downshift have legs?
This is a critical question because, as we’ve written, initial jobless claims are a valuable forward-looking indicator for estimating when recessions bottom out. In our March 6 piece, we looked at the historical record and found that initial jobless claims peaked concurrently with, or sometimes ahead of the formal end of recessions since the late-1960s. That’s valuable information since identifying the end of the business cycle downturn is much easier after it’s obvious to the crowd. The National Bureau of Economic Research, which officially dates the start and end dates of recessions, makes its proclamations long after the fact. Meanwhile, most of the popular metrics for gauging the state of the economic cycle, such as the unemployment rate, are lagging indicators and so they’re among the last to reveal when the recession has turned, much less ended.