If the euro crisis represents a threat to the U.S. economy (and it does), it’s not putting upward pressure on new jobless claims–at least not yet. New filings for unemployment benefits dipped again last week to a seven-month low of 388,000 on a seasonally adjusted basis. We’re still not at the post-recession low reached in this cycle (375,000 in late-February), but the old trough is now within shouting distance.
Will the troubles in Europe derail this progress? It’s premature to say for sure. Much depends on what policy makers do next. But here in the states, there’s a fresh data point that promotes cautious optimism that maybe, just maybe, the labor market in the U.S. is headed for sustained if only moderate healing. Assuming, of course, that the euro debacle doesn’t explode (and that’s by no means a given). The coming days and weeks will surely be critical for deciding if this glass is half full or cracked and leaking.
“The U.S. economy continues to show signs of strong momentum,” says Millan Mulraine, a senior macro strategist at TD Securities. “The improvement in claims underscores that the gains in labor market activity over the past few months are being sustained.”
I’m reluctant to say that jobless claims are now on a sustained downtrend, but the odds certainly seem to improving for this long-awaited virtuous cycle. It’s been clear for the last month or so that the economic activity in the U.S. has revived after moving close to stall speed in September. Deciding how much of the recent pop is due to stronger growth vs. pulling away from the edge is still debatable. Even if the euro crisis could somehow be solved tomorrow, the old problem of minting jobs is still with us.
“Layoffs have eased, which is a great sign,” says Omair Sharif, an economist at RBS Securities. “The other side of the equation, however, is that firms are still very hesitant to hire. You’re getting a very gradual improvement in the labor market.”
Gradual progress is obviously better than a shrinking labor market, but we’re still a long way from creating jobs at a rate that will pull the economy out of its mediocrity. Yet job growth is essential at this stage for repairing another potential trouble spot: the mismatch between growth rates in consumption and income. The cure is fatter payrolls. Today’s jobless claims report suggests we might actually see more improvement on this front, assuming the European Central Bank keeps the euro contagion from spreading. But as I wrote earlier, that’s still a big if.