Jobless Claims Remain Elevated Despite Last Week’s Sharp Decline

Initial jobless claims dropped sharply last week, the Labor Department reports, but we’re still not out of the woods. The recent jump in new filings for jobless benefits went into reverse, but no one can ignore the still-elevated levels for this series. And until we see more reports like this morning’s, there’s going to be some awkward questions.

Seasonally adjusted claims fell last weekly by a hefty 44,000, pulling the total down to 434,000. That’s a big retreat, and a welcome one–just in the nick of time. But the trend still looks ugly and the tally remains well above the 400,000 mark. Indeed, the four-week moving average for new claims inched higher to over 436,000. That’s the third installment of a four-week average number above 400k and it brings us back to the trend level in February, when worries about the economic outlook were somewhat stronger.

Today’s news that claims fell big time is surely encouraging. Anything less would have sent shivers down the crowd’s collective spine. But until (if?) we see more big retreats, and soon, the jury’s still out on what it all means. You don’t need much of an excuse these days to wonder about the prospects for economic growth and the biggest jump in jobless claims since the recession technically ended surely fits the bill. There’s probably enough forward momentum to keep everything humming, but even modest confidence doesn’t come easy.
Yet with job growth in the private sector showing no signs of reversal last month, it’s not obvious that the trouble in jobless claims warrants broader concern for the labor market. That is, unless the recent pop in new claims has legs. For the moment, however, we dodged a bullet, even if the battle rages on. Yes, we’re back to the week-to-week nail-biting of reading jobless claims numbers to tell us how much optimism (if any) is appropriate. Back to the future.
When jobless claims become a non-issue (i.e., when the reports are routinely running far below the 400,000 line), we can move on. For a time it looked like we’d jumped this statistical shark. The more things change…
But don’t despair. Mass layoffs for this year’s first quarter also posted a sharp drop from the previous quarter and the year-earlier period too. The rise in jobless claims generally in recent weeks doesn’t seem to be infecting other reports in the labor market. Let’s hope it stays that way. But if we see another cockroach, the mood’s going to get a lot darker before it brightens.
Meantime, let’s be clear about where we stand in the grand scheme of things (as if we didn’t already know). “Nine million jobs were lost in the recession, and we have added back only 1.8 million of those jobs in the past two years, which means that we still have a long way to go before labor markets can be described as healthy,” Cleveland Fed President Sandra Pianalto said in a speech today. “In April, the economy added 244,000 jobs, but the unemployment rate ticked back up to 9 percent. These numbers highlight the slow pace of improvement in the labor markets. Labor force participation is at low levels, which reflects a large number of discouraged workers who have simply given up on finding a job. I estimate that even at the end of 2013, the unemployment rate will be around 7 percent.”