Are Jobless Claims Treading Water Again?

New filings for jobless benefits slipped a bit last week, but the bigger story is that new claims appear to be stuck in neutral again. It’s hard to say for sure, however, since the weekly numbers are quite noisy. But if the last few months are an indication, progress in paring claims has slowed to a crawl if not ceased altogether. Even so, it’s too soon to assume the worst: the year-over-year change in unadjusted claims is still falling.

Let’s back up a minute and consider today’s news. New claims fell 3,000 to a seasonally adjusted 382,000 last week. That’s near the highest levels since May and quite a move up from the post-recession low mark of 352,000 in July 2012.

The annual percentage change in unadjusted claims provides a clearer read on the trend, however, and by that measure there’s still a decent signal of progress in the data. New claims last week were a bit more than 7% below the year-earlier level. That’s leaning toward the upper range of the annual pace of decline lately, but it’s still a respectable fall… if we can keep it.

But let’s not jump the gun here. When and if jobless claims—a key leading indicator—are flashing red, it won’t be a gray area. Yes, the expansion’s momentum has weakened lately (see our Economic Trend update from earlier this week, for example). For now, however, the numbers still don’t look ominous overall. A bit worrisome, perhaps, but still well short of acute in terms of slipping over the edge. New, unadjusted claims continue to retreat on an annual basis, a measure that strips out the seasonal and short-term distortions that can and do mislead us. Until we see this indicator’s annual change consistently move closer to zero and above, it’s premature to read too much into the last few weekly data points.
“We’ve seen a little move upward in jobless claims over the last few weeks, but nothing to suggest the economy is in trouble, Gary Thayer, chief macro strategist at Wells Fargo Advisors, tells Reuters. “It’s more the case that we are still in a period of slow growth.”
Keep in mind too that weekly claims have suffered a dry spell before without leading to a recession. Not surprisingly, in those cases when the weekly data was stagnating (late-2010, early 2011, for example), the economy continued to expand. In fact, there was a good reason for expecting no less back in late-2010/early 2011 via the ongoing drop year-over-year drop in new claims.
When there’s a clear and conspicuous change in the trend, revealed by jobless claims and other indicators, you’ll read it about here. That’s not to say that all’s well, or that there’s a high confidence that the economy will keep growing over the next six months or a year. But we shouldn’t go off the deep end in searching for trouble either. When the warning bells are ringing loudly, the shift in the cycle’s direction will be obvious, or at least substantially more compelling than what we’re seeing today.
In short, don’t confuse cloudy weather with a hurricane. The former may lead to the latter, but you need more than a hunch to know when the risk is truly rising.