This morning’s update on initial jobless claims suggests that our previous anxiety over the recent rise in new filings for unemployment benefits was a false alarm. Good thing, too, since being right would have meant looking at a much bigger problem. Fortunately, the Labor Department reports today that new claims dropped last week to 442,000, or down 14,000 from the week before. Except for the first week of February, that’s the lowest reading since this data series peaked in March 2009. A collective sigh is in order, or so it seems.
Was that the all-clear signal for the labor market? No, not by a long shot. But what today’s report does suggest is that the population of the newly unemployed is declining once again, at least according to official statistics. That’s a positive trend, although the pace of the decline remains sluggish by previous post-recession standards. But that’s a different problem, and far from the biggest one for the labor market these days.
In any case, worrying that initial jobless claims had hit a floor, or was set to rise, isn’t quite so compelling today. True, we’d prefer to see a new post-peak low to seal the deal—dipping below 400,000 would do the trick. But even the arrival of that minor milestone alone wouldn’t say much about the prospects for job creation directly.
For much of the past year, the decline in new jobless claims has been a crucial sign for thinking that the economic contraction was slowing and that the overall business cycle trough was near. Indeed, the low point for GDP seems to be behind us. But then the trend last month offered some reason to second guess that assumption, in part because of the sideways action in jobless claims. But if that’s no longer a concern, we’re still stuck with the problem of growth–or the lack thereof. A labor market that’s no longer deteriorating isn’t the same thing as one that’s expanding.
Initial jobless claims become less valuable as a relevant data point with each passing week at this stage of the business cycle. Yes, last year’s persistent decline in new filings for jobless benefits retained its forecasting prowess in anticipating the technical end of the recession, which will probably be in 2009’s second half, once the NBER gets around to officially identifying the recession’s end. That’s par for the course with initial jobless claims, based on its history of peaking ahead of cyclical troughs, as we discussed a year ago.
But at this point, the trend in new jobless claims is less important. In fact, it’s safe to say that its main value is one of signaling a fresh round of trouble ahead—if it starts rising. If that’s no longer likely, as today’s numbers suggest, then the heavy lifting for evaluating the future shifts to various reports reflecting the labor market proper, such as nonfarm payrolls.
On that front, the best we can say is that the economy is no longer shedding jobs, at least not in significant numbers. But we’re still waiting for signs that the economy can create jobs on a net basis for some period of time. So far, that critical point has yet to arrive. The next batch of evidence, for ill or good, arrives next week with the monthly jobs report for March. Meanwhile, optimism on the labor market is defined as recognizing that it’s (still) not getting worse, and perhaps the trend is on the cusp of getting better, if only marginally. That’s better than the alternative of decline and contraction, but it’s still not good enough.