The Road To Nowhere?

Today’s update on weekly jobless claims doesn’t tell us much. New filings for unemployment benefits inched lower last week by 1,000 to a seasonally adjusted 428,000, but that’s effectively no change. As a result, there’s still plenty of mystery about what the crucial July 8 employment report for June will reveal. There was some hope that today’s jobless number would offer some perspective, but the veil of uncertainty remains tightly drawn.

For roughly a month now, jobless claims have been treading water. That’s not good, since we’re riding well north of the 400k level. As such, today’s report is a disappointment. At best, the current pace of new claims is a sign that the labor market remains in some distress. On the positive side, claims have pulled back from the April surge, but without further declines it’s starting to look like we’re stuck in an elevated range. Until, or if, some catalyst can bring the claims levels under 400k, the macro risk is uncomfortably high, or so claims are telling us.

There’s a bit more optimism in the unadjusted raw numbers when viewed on a year-over-year basis, which strips out a lot of the short-term noise in this volatile series. As the second chart below shows, claims on this basis are still falling vs. the year-earlier period. That’s encouraging because it implies that the threat of recession is still low, at least for the immediate future. It would surely be a dark sign, however, if the annual pace of unadjusted jobless claims started trending consistently higher—or worse, rising vs. the same date from a year ago. Fortunately, there’s still some distance between that ominous signal and the current trend. But the margin of comfort has thinned recently.

Turning back to the bright side, it doesn’t hurt that the last full month of economic reports suggest that the economy continues to lean toward growth, as I discussed yesterday. But without a sign that job creation has rebounded after May’s troubling report, the optimism runs only so far. The strongest case you can make at this point is that the broad trend has pulled back from the brink, but that’s about as far as it goes.
For the moment, we’re still drifting in terms of data from the labor market. It’s not getting worse, but it’s not getting better either. Are we due for an attitude adjustment? We’ll know more by the end of next week, after the June employment update. Meantime, it looks like we’re stuck with a neutral-to-modestly positive outlook and awaiting fresh data to tell us which way the wind’s blowing for the rest of summer.