Initial jobless claims dipped below the 400,000 mark last week, signaling that the odds of a new recession aren’t rising and may very well be falling. New claims for unemployment benefits dipped to a seasonally adjusted 397,000 last week. That’s the lowest since touching 395,000 for the week through September 24. Yes, we’ve seen this movie before only to get burned with letting optimism carry us away. But a bit of good news never hurts these days and so we’ll take a bit of statistical sunshine wherever (and whenever) we can get it.

The key takeaway with today’s update is recognizing that recessions don’t usually arrive with falling levels of initial claims, which is one of the more reliable leading indicators of the business. Yes, such statements come with all the usual caveats and so no one can fully dismiss the possibility that it’s different this time. Leaving that hazard aside, however, leaves plenty of room for thinking that initial claims are again moving toward a healthier trend. It’s all the more compelling when we look at claims in context with several other economic trends, such as the persistent strength in retail sales on a year-over-year basis.

Nonetheless, let’s also be mindful of the noise that muddies the numbers for initial claims in the short run. That inspires looking at the annual pace, which allows us to dispense with the seasonal adjustment. Reviewing the trend through that prism reveals that the discouraging upward bias of late has taken a breather. It’s too soon to say if we’ll see more of it, but the possibility certainly looks somewhat stronger today. Plugging in last week’s update into the chart below shows a healthy drop in the annual change of fresh claims. An encouraging sign, but one that needs more time to evolve. This, after all, may be yet another head fake.

But if the annual pace of new claims continues to recede, so too do the estimated odds that we’ll suffer a new recession in the near term. But it’s debatable if in fact that’s a reasonable view at this point. The best we can say for sure at the moment is that the annual change in new claims is no longer rising. Perhaps the next few weeks will offer stronger evidence for arguing that the trend is falling. Last week’s update seems to be leaning in that direction. Yesterday’s ADP Employment Report for October hints at no less, which suggests that tomorrow’s employment report from the Labor Department will offer another batch of moderately satisfying numbers.
“The trend remains very constructive,” opines Eric Green, chief market economist at TD Securities. “It’s back below 400,000, which seems to be the pivot point in terms of a strengthening labor market as opposed to a weakening one.”