So far, so good. Jobless claims dropped last week by 23,000 to a seasonally adjusted 340,000, or near the five-year low of 327,000 for the week through April 27. The fact that new filings for unemployment benefits continue to stay close to the cyclical trough is an encouraging signal for anticipating that modest growth in the labor market will continue for the near term. Adding a bit of support for thinking positively is today’s Markit Flash U.S. Manufacturing Purchasing Managers Index (PMI) for May, which shows that the sector is still growing, albeit at a slower rate this month.

The trend deceleration in the PMI data would be troubling if the labor market was showing clear signs of distress. But jobless claims suggest otherwise. As the first chart shows, claims are still trending lower, which suggests that the economy will continue to mint new jobs a modest pace.

The relatively upbeat view is also the message with claims when we review the year-over-year trend in unadjusted terms (before seasonal adjustment). By this standard, jobless filings continue to fall at a pace that’s typical vs. recent history. If the economy was rolling off the cyclical edge, it’s highly unlikely that claims would continue to fall.

Today’s PMI report offers an early look at the macro profile for May through the prism of the manufacturing sector. The news here is that the slowdown has spilled over into May. But it’s important to note that the sector is still expanding, albeit at a pace that’s moving closer to stall speed. In turn, we have a clue for expecting that the more widely followed ISM Manufacturing Index update for May (scheduled for release on June 3) will also reflect a lesser rate of growth vs. April.

The lower numbers in the PMI data of late raises concern that deeper woes lie ahead for the broader economy. Other indicators are sending similar messages, including the drop in industrial production for April. By some accounts, it all adds up to a major turning point that precedes the onset of a new recession in the months ahead. But assuming the worst is still premature. A broad reading of the data still equates with growth, as last week’s review of April’s numbers writ large implies. Today’s jobless claims report doesn’t change that analysis.
The deceleration in manufacturing may turn out to be an early clue of what’s to come, but deeper woes still look like a low-probability event as long as jobless claims are trending lower.