Jobless Claims Rise Slightly Last Week, But The Trend Is Still Encouraging

Jobless claims rose modestly last week, the Labor Department reports, but reviewing the numbers in context with recent history suggests that this indicator is still on track to trend positive. New filings for the week ended August 18 increased by 4,000 to a seasonally adjusted 372,000, the highest level in five weeks. But that pales as a relevant factor compared with the year-over-year change for unadjusted claims, which posted a 10% decline as of last week. That’s in line with recent history and an encouraging sign that the labor market continues to heal, albeit slowly.

As usual, it’s best not to get worked up over the latest data point for this series, which has a habit of suffering lots of misleading short-term volatility. Even so, it’s worth mentioning that last week’s seasonally adjusted update remains near a four-year low.

More importantly, the annual percentage change in new claims—before seasonal adjustment—is still comfortably below zero, dropping 10% last week from its year-earlier level. That’s roughly the pace we’ve seen for the better part of the past year, give or take the occasional diversion. The message is that new filings for unemployment benefits are still drifting lower, once we strip away the short-term noise and seasonal distortion.

It’s the future, of course, that matters. Looking too far ahead is dangerous, but let’s consider a few estimates of the next several weeks to come. Analyzing the past decade of weekly claims data with my ARIMA forecasting model projects that August overall will deliver another positive month for this indicator in terms of how the numbers compare with a year ago. That’s not surprising, given the fact that a) we already have several weekly August numbers in hand, which look encouraging; and b) the year-over-year declines have prevailed for this data set on a monthly basis since November 2009. It would take a huge negative shock to derail the August trend at this point. Barring that, it’s getting easier to assume that weekly claims will remain a positive factor for August generally in my recession risk model.
Jobless claims are an important leading indicator, although we should still look at a broad set of economic and financial numbers for a deeper read on the economy. It’s never clear when any one indicator is steering us wrong. Nonetheless, for the moment, this is one variable that’s not flashing warning signs, even if some pundits mistakenly think that last week’s data point alone suggests otherwise.
Correction: An earlier version of this story incorrectly stated that last week’s seasonally adjusted claims rose by 3,750. In fact, claims rose slightly more: +4,000 last week.