The message in today’s update on initial jobless claims is that the labor market recovery has stalled. The crowd has more or less suspected as much these last several months, but today’s numbers drive home the point. It’s clear from looking at the trend that we’re stuck in an elevated range. It could be worse, of course. New weekly claims could be rising. Instead, they’re treading water, albeit at levels that leave little room for comfort in thinking positively about what happens next for job creation and therefore the economy. True, overall growth still has the upper hand and there’s a number of reasons to expect more of the same. But the economy’s flying closer to stall speed.
New filings for unemployment benefits rose by 10,000 to a seasonally adjusted 418,000 for the week through July 16. That’s the biggest weekly jump since late May. More troubling: jobless claims have remained north of the 400k mark for 15 consecutive weeks. “We’re just stuck in this trend between 410,000 and 430,000, Jeffrey Greenberg, an economist with Nomura Securities, tells Reuters. “Generally we’re just really not seeing any improvement but also not much worsening.”
The optimistic view is that job growth has slowed considerably, which finds easy corroboration in the June employment report, but with minimal consequences. The darker outlook is that the sluggishness in the labor market will spread–is spreading–to other corners of the economy and will reduce the modest growth that otherwise prevails.
It’s always useful to step back from the short-term noise in jobless claims and consider the big picture for this volatile series. As it turns out, the profile on this front is more encouraging. But there’s also a clear warning sign. The unadjusted annual pace of change for new jobless filings is still falling, but the rate of decline is fading, as the second chart below shows. That’s not unexpected. After recessions end, the annual rate of decrease in new jobless claims moves slips away, eventually moving to zero and above. That’s the natural course of the business cycle. The biggest improvement comes right after the worst of the recession. The trouble this time is that absolute job growth has been weak in the rebound and so the natural cyclical forces are poised to inflict pain that wouldn’t normally be present if the labor market had been minting higher levels of new jobs over the past several years.
In sum, the economy remains unusually vulnerable to shocks. Two potential negative catalysts at the moment: the uncertainty surrounding the budget negotiations in Washington, which could trigger a default on Treasuries. There’s also the default risk in Europe, which threatens another front of uncertainty.
The trouble is that there’s not enough growth in the labor market to offset any new affronts to the economy. “The labor market is still quite fragile,” advises Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp., via Bloomberg. “The pace of firings continues to move sideways and it’s obvious there is not a lot of hiring going on. There is not a lot of demand right now.”
Until the precarious state of the labor market changes for the better, there’s a fair amount of macro risk hanging over our collective heads. Some of it is self inflicted by way of politics. As a report from Goldman Sachs notes, the budget wrangling in Washington is a “contributing factor” in the sharp drop in the latest reading for consumer confidence.
But the case for salvation isn’t lost. If the politicians work out a deal and avert a default, a collective sigh of relief is likely. It’s unclear if that would translate into better numbers for the labor market, but hope springs eternal.