A Pair Of Positive Macro Reports On Thanksgiving Eve

Today’s updates on initial jobless claims and the Chicago Fed National Activity Index bring encouraging news for the US economy as the nation prepares to celebrate the Thanksgiving holiday. New filings for jobless benefits dropped again last week, falling to the lowest level since late-September. Meanwhile, the three-month average of the Chicago Fed National Activity Index (CFNAI-MA3) inched ahead in October, reaching the highest level in eight months. Taken together, these two numbers bring a slightly stronger positive aura to the US economic outlook. It’s still premature to argue that growth overall is set to accelerate, but the data du jour suggest that it’s not getting any easier to be a pessimist when it comes to big-picture macro analysis.

Let’s start with the Chicago Fed data. CFNAI-MA3 increased last month to +0.06–a bit better than my econometric forecast. True, the advance is small, although the return to positive territory for the three-month average tells us that the economy is again expanding at a rate that’s slightly above trend. (A zero reading means that the pace of growth matches the historical trend, while a negative number indicates below-trend growth). More importantly, the +0.06 level for October is far above the danger zone of -0.70 (values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed.)

Turning to jobless claims, new filings for unemployment benefits posted another healthy decline last week, falling 10,000 to a seasonally adjusted 316,000. As the next chart below shows, there’s a strong downward bias these days for this leading indicator. Indeed, the weekly number has remained under the four-week average for five straight weeks, which suggests that the downward momentum reflects a genuine change for the better in the labor market. It’s unclear if this will translate into faster growth in nonfarm payrolls, although the possibility is at least plausible. The sight of a better-than-expected rise in private payrolls in October certainly doesn’t hurt the case for optimism, although let’s reserve judgment until we see the November jobs report, scheduled for release on December 6.

Meantime, the year-over-year decline for new claims also looks encouraging, although a bit more caution is in order here as the year-earlier data is still unusually high due to the temporary effects of Hurricane Sandy in November 2012. As a result, the steep decline of late is surely misleading in some degree. It’s going to take several more weeks before the annual comparisons offer a more reliable measure of the trend in new claims. But with yet another upbeat report in today’s weekly review, it’s likely that the year-over-year trend will remain bullish once we move beyond the range of last year’s storm-related effects.
Today’s reassuring data isn’t a surprise, given the generally positive trend for the US economy overall, as implied by this week’s update of the Economic Trend & Momentum Indexes. As I wrote on Monday, there’s been a fair amount of turbulence on the macro front recently, but an objective, broad review of the numbers never signaled imminent danger for the business cycle. Today’s releases, along with yesterday’s unexpectedly encouraging news in newly issued housing permits, only strengthens the case for expecting that the economy will generate a moderate rate of growth in the months ahead. This analysis is subject to revision, of course, depending on the incoming data. But for the moment the macro view still looks mildly positive, albeit with the usual caveats.
Happy Thanksgiving!