April’s Pinch Gets A Bit Tighter

It’s a rough morning for US economic news. Initial jobless claims jumped sharply last week and housing starts in April suffered the biggest monthly decline in six years. Overall, it’s pretty ugly, but it’s not yet fatal for the business cycle, or so a broad review of indicators still suggests. We could be slipping over the edge, but we could just as easily be stuck in another one of the temporary slow patches that’s plagued the recovery from time to time since the Great Recession ended. Clarity is coming, even if it’s tempting to assume the worst in the wake of today’s updates. But before we do anything, let’s take a closer look at the data.

Jobless claims rose last week by a hefty 32,000 to a seasonally adjusted 360,000. The five-year lows of the past few weeks suddenly look like ancient history. But if it’s easy to over-dramatize last week’s pop, putting the numbers in context suggests that nothing much has changed. Indeed, despite the latest increase, the four-week moving average has barely nudged higher.

Somewhat more troubling is the year-over-year trend in the unadjusted claims data. As the next chart shows, new filings for unemployment benefits slid by a thin 2% last week vs. the year-earlier total. That’s the smallest pace of decline in six weeks.

The big loser in today’s news, however, is new housing starts, which slumped to the lowest level since last November. The good news is that newly issued building permits jumped last month, topping the 1 million mark for the first time since 2008. That’s a sign that housing starts may rebound in the months ahead. It doesn’t hurt that builder optimism rebounded a bit in yesterday’s update of the the National Association of Home Builders/Wells Fargo Housing Market Index for May.

On a year-over-year basis, both starts and permits continue to post healthy gains, although new residential construction’s annual pace fell to +13% last month—the slowest since October 2012.

Yes, we’re all on high alert once again about the possibility for deeper troubles in the economy. But we’ll need to see the warning signs stretch out well beyond a few dark data points, which is all we have now.