Are Seasonal Factors Behind Last Week’s Jump In Jobless Claims?

Last week’s sharp increase in new jobless claims implies that the labor market’s recovery momentum is fading. Initial filings for unemployment benefits jumped a hefty 13,000 to a seasonally adjusted 380,000 for the week through April 7, the Labor Department reports. That’s discouraging for several reasons. First, it’s the biggest weekly increase in over three months. Second, new claims are now at the highest since late-January. Third, the upward deviation from the trend—defined as difference in the latest weekly claims number vs. its four-week moving average—is the most in nearly a year.

Let’s just say that the latest news on claims isn’t good. And if we consider the report in context with the dramatic slowdown in jobs growth last month, the cyclical clouds look even darker. But before we go off the deep end, it’s time once again for some perspective. And once we consider a broader context, it’s obvious that it’s too soon to admit defeat for anticipating the economy to continue growing.
For starters, the standard caveat applies: weekly jobless claims numbers are a volatile lot and so you can’t tell much, if anything, about a single report. One method for smoothing the volatility in search of deeper meaning is by watching the four-week average, and on that score not much has changed. The four-week average rose a bit last week, but otherwise it’s near a four-year low. The trend, as the chart below reminds, continues to look healthy.

Another way to strip out the short term noise (along with the seasonal adjustments that can cloud the big-picture analysis) is to focus on the year-over-year trend in the raw claims numbers. Here too the news remains encouraging. In fact, the trend appears to be improving. As you can see in the second chart, unadjusted weekly claims fell last week by nearly 14.8% vs. a year ago. That’s the biggest decline in three months and it suggests that the recent retreat in new filings for unemployment benefits still has momentum.

Nonetheless, it’s hard to forget that the payrolls report for March delivered a negative surprise last week in the form of a dramatically lower number of new jobs. Today’s jobless claims update will only stimulate the crowd’s anxiety level.
“On the back of last week’s employment report, this does suggest momentum in labor market is slowing a bit,” Sean Incremona, a senior economist with 4Cast Inc., tells Bloomberg. But then he hedges a bit by advising that “I wouldn’t, though, read one claims report and one payrolls report as suggesting that the trend of improvement has stalled.”
Eric Green, chief economist at TD Securities, isn’t rushing to judgment either. “It’s very difficult to know the extent to which that’s driven by seasonal effects from Easter or not,” he notes via Reuters. “This is not a game changer, this does not confirm the weakness in the report we saw last Friday. We suspect that much of the increase was due to seasonal issues and we would therefore expect it to drift lower.”
Blaming the seasonal factor certainly looks valid when you consider the unadjusted annual decline shown in the second chart above. Of course, it’ll take time to confirm, or deny, the theory. Tune in a week from today for the next jobless claims update. Meantime, perhaps the update on retail sales for March, scheduled for release on Monday, April 16, will tell us more.
Based on early reports from retailers directly, March spending patterns continue to look encouraging… maybe. “There’s a growing belief we reached bottom a while ago,” says Joel Bines, managing director of the retail practice of AlixPartners, a consulting firm. “Rather than confidence that things have turned the corner, it’s confidence that things are unlikely to get worse from here.”