New jobless claims slipped under 400,000 last week on a seasonally adjusted basis for the first time in four months. That’s hardly an all-clear signal for the economy, but at least you can argue that the numbers on this important forward-looking indicator aren’t getting any worse. It’s still open for debate if the trend is getting any better, although as we’ll discuss in a minute there’s some good news to consider.

Meantime, last week’s new filings for unemployment benefits dipped to 395,000 from 402,000 previously. That puts the latest number at its lowest level since the week through April 2. In addition, new claims remain under their four-week moving average for the third week running.

Minds will differ if any of this is meaningful in terms of looking for bits of optimism. Fortunately, there’s a stronger source of encouragement to consider: the unadjusted 12-month change in new jobless claims. As the second chart below shows, there’s substantial movement to the downside here in the latest report and, yes, that’s encouraging. New claims last week were more than 17% under their year-earlier level. That’s the biggest drop for the annual change since late-February.

What’s the decline in the rolling 12-month percentage for new claims suggesting? The odds of a new recession are still minimal. Economic contractions aren’t normally associated with jobless claims falling by double-digits on an annual basis. And with last week’s relatively encouraging numbers for jobs creation in July offering some positive corroboration, perhaps the labor market isn’t set to capitulate after all. Yes, hope may be hanging by this one thread, but it’s a rather thick thread. If it gives way, all may be lost, but so far we’re hanging on.
But let’s remember too that jobless claims, as valuable as they are for assessing the future path of economic activity, are just one factor. Any one predictor can lead us astray at times. Indeed, you can count on it, although when and where is always uncertain.
The only solution is to review a mix of predictors—a diversified mix, meaning a range of variables that are complementary. There are countless possibilities, although the short list includes the yield curve, the credit spread, the market’s inflation forecast, the 12-month change in the stock market, and several others. Unfortunately, we’re starting to see more mixed/negative messages in a broad review of predictors.
The 12-month change in the S&P 500, for instance, is just about flat at the moment. Considering that it was up by more than 10% recently, well, that’s a discouraging sign. If it goes negative for any length of time, it would cast one more dark shadow over the macro outlook. Every recession in the last 50 years has been accompanied by a 12-month loss of some significance in the stock market. We’re not there yet with equities, but it’s too close to rest easy.
Yes, there are other signs of hope, including today’s jobless claims report. But make no mistake: the battle is engaged. We’re at the critical juncture, again. The headwinds to growth are the strongest since the recession was officially declared at an end as of mid-2009. It’s not clear if we’ll tip over into a recession or hold the line. Ours is a precarious existence these days with the macro trend. As such, each new data point may bring critical change, for good or ill.
For the moment, at least, the defenses appear to be holding steady in the labor market, which is to say that the weak trend for jobs doesn’t seem to be deteriorating. That’s not a lot, but it’s something. But even one day can make a big difference now.