Another Five-Year Low For Jobless Claims

It’s the gift that keeps on giving. Initial jobless claims slipped again last week, retreating by 4,000 to a seasonally adjusted 323,000 -- the lowest since January 2008. The latest drop is slight, but the fact that claims fell to another multi-year low for the week through May 4 is significant. The main takeaway in today’s report: the odds continue to look favorable for modest growth in the labor market.

There’s always doubt surrounding the signal from any one indicator, but the trend in jobless claims looks quite positive and so it’s hard to argue that the business cycle is deteriorating. The recent numbers for this volatile series could be misleading us, but that risk looks low once you consider that claims continue to fall on a year-over-year basis.

Indeed, unadjusted claims (before seasonal adjustment) dropped 12% last week vs. the year-earlier level, and a similar decline applies to the seasonally adjusted figures too.

Fewer layoffs, week after week, provides a fair amount of confidence for expecting that jobs creation will remain positive for the near term. Based on the numbers so far, it’s reasonable to expect that May payrolls report will deliver another decent number. In fact, the odds for an upside surprise are looking better, or so today’s claims data implies.

The healthy trend in fewer layoffs might be suspect if dark signals dominated the other major indicators. But that’s hardly the case, as a recent update of the broad profile of US economic activity shows. The US economy is still operating at well below capacity on a number of fronts, and the labor market’s not immune from that diagnosis. But the mistake that some analysts make is confusing weak/modest growth with an overt sign that a new recession is near. Some of this confusion is a byproduct of cherry-picking the data and/or focusing on the recent numbers without considering the trend -- failings that are easily resolved, if you’re so inclined to see the data in proper context.

Yes, the potential for the economy to fall victim to contraction is certainly elevated, but that’s been true for several years. What’s been missing to date is a strong signal that we've reached a tipping point. We’ve seen a few economic updates lately that hint at deeper trouble, but so far the statistical darkness has remained the exception. One day that will change, but not today.

A fair review of a broad, diversified set of economic and financial indicators continues to point to more growth for the near term. The expansion is weak by historical standards, but weak growth is still growth, even if some pundits keep trying to convince you otherwise.