The folks expecting a new recession have a new statistical challenge today. Initial jobless claims fell sharply last week, dropping 50,000 to a seasonally adjusted 352,000. The last time new filings for unemployment benefits were this low was nearly four years ago—April 2008. Last week’s large 50,000 tumble is impressive as well relative to history. Indeed, we just saw the largest weekly drop in more than three years.
The good news might be a temporary bout of statistical noise if the latest decline was an isolated event. But as I’ve been discussing recently (here and here, for instance), it appears that new claims have entered a virtuous cycle and today’s update strengthens that argument rather forcefully. You can’t trust any one indicator for judging the business cycle, even a generally reliable leading indicator like weekly jobless claims. But it’s getting increasingly awkward for arguing that the economy’s headed for an imminent recession when claims are dropping persistently and substantially.
This much is clear: either we’re due to see a major stumble in the value of new claims as a leading indicator—or the analysts who say there’s a fresh downturn afoot will be forced to revise their prediction. One way or another, there’s a volte-face out there somewhere.
Meantime, the latest fall in claims offer a tidy bit of confirmation for encouraging reports arising elsewhere in the economy, including yesterday’s news that industrial production rose a respectable 0.4% in December. As a result, industrial production was higher by 2.9% on a year-over-year basis, or near the best levels posted in the pre-Great Recession glory years. Signs “that manufacturing in the U.S. is gaining global market share appears to be growing, and this could be an important dynamic supporting growth in 2012,” says John Ryding of RDQ Economics.
If you’re still inclined to worry, there’s no shortage of potential trouble spots to choose from. Looking within the U.S., the weak reading lately on disposable personal income is on the short list of negatives to consider. The drop in housing starts last month doesn’t look encouraging either. There’s also plenty of anxiety about the troubles in Europe, including what now looks like the onset of recession on the Continent.
It’s too soon to dismiss the possibility that Europe’s woes won’t spill over into the U.S. But for the moment, the case for arguing that a recession is fate looks fragile. Unless, of course, initial claims are delivering the mother of all misleading predictions. Never say never in economics, but sometimes the numbers look compelling.
“Over the long run, initial unemployment claims are closely related to monthly employment statistics released by the Labor Department’s Bureau of Labor Statistics,” notes economist Evelina Tainer in Using Economic Indicators to Improve Investment Analysis. That implies that job growth will accelerate. December’s nonfarm payrolls report for the private sector hints at such a possibility. For now, there’s only speculation…and a number du jour that’s not so easily ignored.