Not good, not good. Initial jobless claims popped higher by 9,000 to a seasonally adjusted 429,000, the Labor Department reports. previous week’s claims were also revised up by 6,000 to 420,000. The surge in new claims in April has subsided, but the message seems to be that it’s subsided to a relatively elevated level vs. the trend that had been unfolding in this year’s first quarter. The stakes are high. Hanging in the balance is deciding if the May’s sharp slowdown in job creation was a one-time event or the start of materially weaker employment numbers in the months ahead.

Today’s update on new filings for unemployment benefits suggests that the June employment report (scheduled for release on July 8) may deliver another round of disappointment. In that case, it’s likely there’ll be a major reassessment of the entire macro outlook. Meantime, there’s still hope. It’s one thing to see job creation virtually evaporate in one month, as it did in May. But it could be statistical noise. On the other hand, two months of weakness in what is arguably the single-most important economic report would be much harder to dismiss.
Unfortunately, the recent trend in jobless claims isn’t leaving much room for optimism. As the chart below shows, the case for arguing that claims are now stuck in the low 400k-range is getting stronger with each passing week. That’s dangerously close to levels associated with recession, and by some accounts it’s already deeply in the danger zone.

There’s slightly more optimism available when reviewing unadjusted raw data for jobless claims on a rolling 12-month percentage basis, which cuts out quite a bit of the short-term variation that can be misleading. Claims by this measure are down by nearly 8% vs. a year ago. That’s encouraging. The problem is that the pace in the year-over-year decline is drifting higher, and it has been for some time. If it continues to inch closer to zero, the jig will be up at some point. But not yet. The battle of growth vs. contraction rages on, but the forces of growth still have the upper hand. It’s a diminished hand, but that’s still better than the alternative.

More generally, jobless claims are crucial leading indicator, but it’s still just one data series and so it can only tell us so much. That said, it’s been advising for weeks now that the economy is struggling again. That’s been clear since late-April, and it remains clear today. The immediate question is what this implies for the June employment report. Today’s update is obviously not good news, but it’s debatable just much of a negative aura this casts over the next monthly jobs report.