The trend is still our friend when it comes to initial jobless claims, a valuable leading indicator for assessing turning points in the business cycle. (For some background, see our analysis published in March.) But increasingly it’s the lagging indicators that worry us. Topping the list of concerns is the trend in nonfarm payrolls, which continues to sink at an unhealthy pace. Will tomorrow’s update on the employment picture for July tell us different?
Before we consider the possibilities, let’s review today’s good news. New filings for jobless benefits slipped by 38,000 to 550,000 for the week through August 1, the U.S. Labor Department reports this morning. And not a moment too soon. Recall that new filings rose last week, prompting worries that perhaps the trend was reversing, which could indicate that the recession might roll on longer than previously thought. In light of today’s update, we can rest a bit easier, although we’re still a long way from repairing the damage that has unfolded in the economy over the past year.
Indeed, even an optimistic reading of recent economic trends should recognize that the bulk of the good news, such as it has been lately, suggests the economy has hit bottom, which is something quite different than declaring that growth has returned. In fact, the jury’s still out on whether we have truly reached the trough in the business cycle. There are a growing number of reasons for thinking that we have, including the downward trend in jobless claims, which have a long history of peaking concurrently or just ahead of the end of the recession. But let’s be clear: Full and complete confirmation of the expectation that the recession has ended will only come after the fact. We’ll simply have to wait and see. For now, however, it’s still reasonable to think that the worst of the contraction is behind us.