Another Jobless Claims Report, Another Reason To Wonder

Did Hurricane Sandy distort last week’s jobless claims data? Possibly. One argument is that the storm kept people away from the unemployment offices and so last week’s decline in new filings for unemployment benefits dispensed an artificially low number. “Extreme weather can hold down filings initially, with people initially preoccupied,” says Jim O’Sullivan, chief U.S. economist at High Frequency Economics. “Claims are likely to be boosted in the next few weeks by hurricane-related job losses.”

It’s a reasonable point, but it seems that there’s always a new reason to dismiss the fall in claims. The reality is that new filings for jobless benefits have been trending lower for well over a year. It could be all over next week, but it’s premature to say that the jig is up, even in the wake of one of the worst hurricanes in decades.
“When you see bad weather, there’s usually a drop in claims, and then you typically see a rebound in the next few weeks,” observes Scott Brown, chief economist at Raymond James & Associates. “Underneath the surface, job destruction has been trending very low. Layoffs aren’t the problem — it’s the relatively weak pace of job creation.”
That’s a fair point as well, and probably closer to the truth. But the potential for Sandy-related blowback can’t be ruled out. “You’ll undoubtedly get a spike in unemployment claims that has not hit yet; it did not hit in the numbers … because everybody was still in the midst of the aftermath of the storm, but, you know, expect the next several weeks to show a significant spike,” predicts Liz Ann Sonders, Charles Schwab’s chief investment strategist.
Perhaps, but no matter what next week’s report says, let’s not read too much into one data point, especially the seasonally adjusted one. A better way to look at the data is to compare the unadjusted numbers on a year-over-year basis, and through time. By that standard it’s not obvious that the modest pace of decline has run its course. New filings are still falling at roughly 10% a year before seasonal adjustment. Last week’s nearly 12% year-over-year drop may be an anomaly; if it is, we’ll see the payback in the weeks ahead. But then comes the question of whether the declining trend will resume. No doubt there’ll be another distorting factor to consider by then.
Meantime, let’s not forget that payrolls data for October perked up a bit, and the manufacturing and services sectors (via the surveys published by the Institute for Supply Management) imply that there’s a decent amount of momentum in the economy.
Is it all a head fake? Never say never, but Rome wasn’t built in a day and periods of economic growth—even relatively weak recoveries—don’t evaporate while you step out for coffee. Let’s see what next week’s reports tell us, including the October updates on retail sales (Wednesday, Nov 14) and industrial production (Friday, Nov 16).
Meantime, there are plenty of talking points to go around. The good news is that the same can be said for mildly encouraging economic data–assuming we can believe it.