Jobless Claims: Still No Sign Of Blowback

Today’s weekly jobless claims update looks encouraging once again. New filings for unemployment slipped by 5,000 to a seasonally adjusted 305,000 last week, the Labor Department reports. Even better, there’s still no sign of blowback from the special factors that reportedly pushed claims down recently due to a computer glitch that affected the compilation of data in several states. Some analysts said that the claims numbers would soar in the wake of the extraordinarily steep and misleading drop two weeks ago. In fact, it’s fair to say that with each passing week, the case looks stronger for arguing that the decline in layoffs is genuinely accelerating. As usual, let’s allow the numbers to do the talking.

Last week’s modest drop in new claims puts the seasonally adjusted total close to the 294,000 reported for the week through September 7–the lowest level since 2006. Meanwhile, the year-over-year change in claims continues to drop at a faster rate these days. New jobless filings last week reflect a 17% decline from the year-earlier level. As you can see in the chart below, that’s a considerably bigger rate of decrease relative to the trend in recent history. In other words, American businesses are laying off fewer workers.

What does the slowing rate of layoffs mean? The optimistic view is that the change will lead to a faster rate of hiring. History suggests as much, although there’s a darker interpretation to consider. A falling rate of layoffs could reflect the fact that companies have been paring employees for so long that they’ve pared to the bone in a bid to increase profitability and weather the rougher economic times. In that case, the slower rate of layoffs may not be an early sign that nonfarm payrolls will be growing at a stronger rate.
For what it’s worth, my view is that both sides of this analysis come into play. Figuring out which piece dominates is tricky. But this much is clear: layoffs are slowing and that’s a positive sign for the economy overall. That’s also the message in last week’s update of Economic Trend and Momentum indexes, which measure the broad trend for the business cycle via 14 economic and financial indicators.
Deciding what today’s claims data means for the labor market in terms of jobs creation, however, remains an open question. Perhaps next week’s payrolls update for September (scheduled for release on Friday, October 4) will provide a clue.