Now we’re getting somewhere. Initial claims for new jobless benefits fell last week by a hefty 19,000 to settle at a seasonally adjusted 366,000. That’s the lowest tally since May 2008, which is to say before the Lehman implosion that turned a financial problem into a macro crisis. That’s a significant change for this leading indicator and it implies that the U.S. economy is poised to muddle through at a stronger pace in 2012.
Today’s drop in claims, combined with a review of the recent downward trend, is far too substantial to dismiss as statistical noise. Making bold predictions in economics is always a dangerous affair, especially these days. But looking at today’s claims update suggests that the modest growth in the labor market may be poised to rise a notch or two.
What could derail this positive momentum? In a word, the euro. The eurozone challenges, which are being exacerbated by Germany’s reluctance to let the European Central Bank act as a lender of last resort, complicate economic forecasts for the U.S. and the global economy. It’s always something. Nonetheless, even with the caveat that Europe could drag us all over the edge, there’s no denying that the drop in new claims in recent months is a sign that the odds of an imminent U.S. recession have suffered another setback. Today’s update strengthens the hand of the optimists by more than a trivial degree.
Nonetheless, a deeper confidence that today’s number is more than a blip will only come with corroborating evidence in the weeks ahead. The true test is whether the drop in new claims translates into higher job growth. For the moment, at least, there’s a bit more support for thinking that better times lie ahead.