Jobless Claims Still Fallling, But The Rate Of Decline Is Slowing

Initial jobless claims fell again last week, dropping for the fifth week in a row. That’s good. But the rate of descent is slowing. It’s too soon to say if this is a warning sign, but as a potential problem it deserves monitoring. As for considering the numbers in hand, today's release offers another dose of mildly upbeat news. With new filings for unemployment benefits inching lower, the case strengthens for assuming that the downward trend that’s been in force for much of this year is intact. In turn, the continued improvement supports a forecast that the labor market will continue to heal.

The key question, however, is whether jobless claims will continue falling and reach the cyclical low of 294,000 (seasonally adjusted data) for the week through this past September 7? The issue is deciding if the modest yet virtuous cycle for payrolls has run its course. No one knows at this point, and for the moment there's nothing especially ominous in the data du jour on this front. Rather, I'm thinking out loud and considering the possibilities for trouble.

That said, today’s report brings us a bit closer to the previous cyclical low, with new claims slipping 2,000 to 339,000. But if you compare the weekly changes across the last six months, the declines of the last several weeks suggest that the level of new claims is more or less treading water. With declines slowing to crawl, at least for the moment, there’s a bit more uncertainty about how the remaining weeks of the year will play out for this leading indicator. Hanging in the balance is the outlook for the labor market generally.

Normally we could turn to the year-over-year comparison for a deeper read on the trend. But for the moment that prism is of minimal value. Yes, today’s report tells us that new claims dropped dramatically last week vs. the year-earlier level with a 25% decline. But that decrease is misleading because the year-earlier figure was temporarily distorted to the upside by Hurricane Sandy, which drove jobless claims skyward. The year-ago surge quickly faded. Nonetheless, the data today and for the next week or two ahead will be of limited use in terms of analyzing the annual trend for claims.

As a result, we’re left to ponder the meaning of a modestly encouraging trend that comes with several caveats.