Jobless Claims Fall Again…To A New Four-Year Low

Initial jobless claims dropped again last week, slipping 13,000 to a seasonally adjusted 348,000, the Labor Department reports. That’s the lowest number of new filings for unemployment benefits since March 2008. The trend, in other words, is still sending a strong signal that the labor market recovery—and economic growth—will roll on.

The jobless claims indicator has predicting recovery for months now and the embedded prediction in today’s update is the strongest yet that the economy will expand for the foreseeable future. You have to ignore quite a lot of cyclical history with this data series to dismiss its record as a leading indicator. As economist Ed Yardeni reminds, the encouraging outlook via claims follows a clear pattern and so pessimists should think twice before rejecting the implied forecast.

Skepticism would be a lot more compelling if other economic reports were screaming danger. But that’s not the case either. Indeed, today’s update on housing starts and newly issued building permits for January reminds that this sector remains on the mend. It’s premature to argue that there’s a robust recovery underway for housing, but at least it’s no longer a negative for the economy, and perhaps it’ll soon be contributing to growth to a more meaningful degree. Meantime, the trend looks favorable. The year-over-year change in housing starts has been positive for five straight months and new permits have been advancing over year-earlier levels since last May. With other economic reports also hinting at continued growth—including the all-important labor market with some support from manufacturing—it’s getting harder to ignore the writing on the macro trend’s wall.

Granted, nothing’s guaranteed when it comes to reading the economy’s tea leaves in the dark art of looking ahead; rather, it’s a game of estimating odds for growth vs. contraction by reviewing numerous reports. But the odds have been looking better for growth since last autumn and today’s numbers—particularly new jobless claims—strengthens this view. As I’ve noted all along, if there’s a new recession brewing the clues will become obvious in the economic data in a meaningful way. So far, those clues of high risk haven’t materialized, at least not to my eyes. For example, late last month I looked at a range of data points and asked if December’s economic momentum (as indicated by several indicators at the time) would survive? There was reason for thinking positively then and more of the same is in order today. Sure, there’s always room for debate about where we go from here, especially these days. But the various economic reports aren’t issuing clear and persistent warnings.
“The job market is getting better and that’s really key,” says Kevin Caron, market strategist at Stifel, Nicolaus & Co. “We’re still in the early innings of this but I’m glad to see another data point that adds to the picture of an improving economy.”
The drop in claims is “clearly reflecting a rapidly improving labor market, signaling further declines in the jobless rate,” advises Sal Guatieri, a senior economist at BMO Capital Markets, via Bloomberg. “It’s good news for consumers, meaning stronger income growth and likely rising confidence that will support spending.”
It could all come apart if energy prices—gasoline in particular—keep rising, or the European recession turns especially nasty, or geopolitical risk goes off the deep end because of Iran. You can come up with numerous scenarios that alter the outlook dramatically. But given the current set of economic numbers these days, predicting modest growth is still the higher-probability scenario. As always, the outlook for the future arrives one number at a time. So far, so good.