Today’s update on last week’s new jobless claims is discouraging, and not only because filings jumped by a hefty 25,000 for the week through May 15.
As the chart below shows, new claims for unemployment turned up last week to 471,000, the highest since early April and in the upper range that’s prevailed so far this year. That raises the risks for the economic recovery, if only slightly. As we wrote last week, the job market has been struggling in 2010 and initial claims offer no reason to think otherwise. True for much of this year, true today.
A rise of any significance in jobless claims is obviously bearish for the simple reason that more folks are joining the unemployment line. As a robust leading indicator, this metric provides some glimpse of what’s coming. Last year it signaled recovery, which is exactly what arrived. Today, however, it’s warning of a round of sluggish economic activity. That’s always bad news, of course, although it’s particularly problematic at this stage, when the recovery should be on solid legs. Then again, weekly numbers are subject to a high degree of volatility and so we need to look at the trend. Unfortunately, the trend so far this year, at best, is one of treading water. Troubling as that is, given the enormous need for net job creation, the challenge is compounded by the possibility that jobless claims are set to rise at a time when it’s already late in the cycle for a labor market recovery that has yet to deliver convincingly encouraging numbers.
And if that wasn’t enough, all this arrives at a time when the risk of deflation may be inching higher, as we discussed yesterday.
The recent economic evidence, combined with the stock market’s decline of late, is signaling that the economic recovery is facing a new round of headwinds. The proof is still tentative and subject to revision in the coming weeks. But the stakes are high and the hour is late. Unless we see some compelling evidence to the contrary in the near future, we may be looking at a long, sluggish summer of second guessing and rethinking about the state of the economic rebound.
But first we need to see the data. Next week brings updates on existing home sales (Monday), consumer confidence (Tuesday), new orders for durable goods (Wednesday), another weekly update on jobless claims (Thursday) and personal income and spending for April (Friday).
The optimistic view is that the still-meager but mounting case for thinking that the recovery has stalled is really a head fake by way of statistical noise. If so, we’ll know soon if that’s reality or wishful thinking. But judging by the stock market’s sharp slide early today, the case for optimism has few takers at the moment.