Jobless Claims Rise Last Week. Meanwhile, The Oil Risk Looms

This morning’s latest on weekly jobless claims is a bit of a setback, but it’s too early to panic. For one thing, last week’s seasonally adjusted 26,000 jump in new filings for jobless benefits is small for this series, given how much it bounces around from week to week. That argument won’t wash with the thousands of newly unemployed, of course, but as a macro matter there’s nothing particularly worrisome in today’s report. That is, until you start looking beyond the data.

But before we consider the wider world, it’s worth noting that even after last week’s rise, jobless claims remained under the seasonally adjusted 400,000 mark for the third straight week—a new record for this cycle. Should we anticipate four in a row?

In another bid to see the glass as half full, consider that the biggest changes in last week’s declines for new claims overwhelmed the biggest increases. The largest pops in initial claims for the week through February 26: Massachusetts (+3,804), Washington (+976) and Rhode Island (+776). On the flip side, the largest decreases: California (-12,730), Illinois (-2,430) and Missouri (-2,255).
Nonetheless, there’s still plenty of room for anxiety for wondering what comes next, not just for jobless claims but for the labor market as well as the broader economy. The recent data is encouraging, but suddenly the stats look dated.
Even if all was right with the global economy, analysts aren’t shy about discounting the recent decline in the jobless claims trend. “We’re just giving back the distortions from the holiday in the prior week,” says Mike Englund, chief economist at Action Economics, via Bloomberg. “It does appear that tightening in the labor market has gained a little steam.”
The broader puzzle is deciding if the rising price of energy has legs and, if it does, will it run long enough and high enough to impair the recovery if not derail it? The jump in oil prices is already taking a toll in some corners. The U.S. trade deficit, for instance, rose sharply in January to a seven-month peak, the Commerce Department reports. U.S. exports rose to record levels in this year’s first month, but the surge of imports overwhelmed the trend.
As The Wall Street Journal notes:

With oil prices surging above $100 a barrel amid continuing unrest in the Middle East, the U.S. is paying a lot more to meet its energy needs. The U.S. bill for crude oil imports in January climbed to $24.51 billion from $22.54 billion the month before. The average price per barrel jumped $4.56 to $84.34, its highest level since October 2008, during the last big price spike. Crude import volumes rose to 290.67 million barrels from 282.58 million. The U.S. paid $32.16 billion for all types of energy-related imports, up from $29.20 billion in December.

And that was before the latest pop in oil prices.
Higher energy costs lessen forecasts of growth, given the fundamental role of crude as an input for GDP. But the crucial question of how long oil prices rise (or not) is unknown—more so than ever, thanks to the current mayhem in the oil-rich Middle East. Even by the usually wobbly standards of Middle East politics, the outlook is exceptionally murky. Short of a sudden calming in that region, it seems clear that some (most?) of the economic news scheduled for release in the coming days will be of limited value until the new realities of crude expectations are reflected in the data. That’s going to take a few weeks, and probably a few months.
Meantime, some analysts are warning that higher oil prices pose a serious threat, perhaps pushing global growth close to stall risk. That’s probably overstating the risk, at least for the moment, but dismissing the idea isn’t getting any easier. Deutsche Bank today is considering the dark side of the near term. “While we remain very much of the view that global growth will remain a priority for government authorities over the course of the year, the recent increase in oil prices has threatened this objective,” the firm warns via The Economy News. “Indeed, spikes in oil prices have often been followed by periods of weak or recessionary economic activity.” The report goes on to warn:

According to DB economists, a USD10/bbl increase in oil prices (to USD110/bbl) would lower global GDP by about 0.4% (taking our global GDP forecast from the current estimate of 4.3% to 3.9% YoY). If, however, oil prices were to rise USD50/bbl (to USD150/bbl), such a shock would negatively impact global growth by 2.0% (this implies a linear relationship between oil pricing and global growth of -0.4% with each USD10/bbl increase).