Is The Labor Market Reviving?

Have we dodged a macro bullet? Today’s employment news offers two data points for thinking positively. New claims for jobless benefits dropped again last week and the ADP Employment Report for June reports a revival in private sector job growth after the sharp downshift in May. The numbers aren’t particularly impressive per se, especially for the new claims tally. But there’s enough juice in the latest updates for arguing that the recent stumble in the macro trend isn’t getting worse and may very well be giving way to a stronger rate of growth.

I’ve recently been pondering the odds that we’re in a temporary rough patch and not a recession (see here and here, for instance) and there’s certainly no reason to abandon the idea today.
Let’s start by taking a closer look at initial jobless claims. As the chart below shows, seasonally adjusted claims fell 14,000 to 418,000. That’s still elevated, suggesting that the economy is still under stress. But it’s also true that last week’s claims are the lowest in more than a month and well below the spike that reached nearly 480,000 back in late April.

Looking at unadjusted weekly claims numbers on a 12-month rolling basis offers even stronger encouragement. This calculation cuts out a fair amount of the short term noise for this volatile series and based on the latest reading it appears that the storm is passing. The 12-month change in raw claims numbers is lower by more than 11%, the best rate of annual decline since mid-May.

The question is whether the fall in new filings for unemployment benefits has legs? Today’s ADP Employment Report suggests thinking in the affirmative. As the third chart below indicates, private sector job growth rebounded sharply last month, with the labor market expanding by a net 157,000, up from a dismal 36,000 reading in May and more than double what economists were expecting. Whatever affliction the economy suffered in April and May appears to be receding, or so the ADP update suggests.

If tomorrow’s jobs report from the government confirms the revival implied in today’s numbers, a huge collective sigh of relief will echo through the crowd. But we’re not there yet. Tune in tomorrow at 8:30 a.m. Washington time.