The ranks of the newly unemployed tumbled last week, as expected. The previous update on weekly filings for jobless benefits reported a dramatic surge, but many analysts -- including yours truly -- argued that the spike was weather related and so it probably wasn't a sign that the business cycle was slipping over the edge. Today's news provides some statistical support for that relatively optimistic perspective.
New claims dropped 41,000 to a seasonally adjusted 410,000 for the week through November 17. That's still high, and uncomfortably so, especially as it relates to recent history. But for the moment, it's reasonable to assume that the return to "normal" is underway, even though it will take time to rid the data of the distorting effects from Hurricane Sandy. Indeed, the storm-battered states of New Jersey and New York reported a huge combined increase in new claims of 75,000 last week. No one confused these two states as ground zero for strong economic growth prior to the hurricane. Yet it's unconvincing to argue that the ranks of the unemployed in NJ and NY would be taking flight to this degree if the skies had remained sunny all along. Short of the arrival of economic Armageddon in the days ahead, it's a fairly safe bet that NY and NJ won't be reporting new claims of 75,000 per week going forward, which implies that there's room for expecting further declines in the national numbers. In fact, one could argue that it's impressive that claims overall fell last week amid such a huge gain in these two states.
Speculation about what it all means for a broader read on the economy will wander near and far, of course. But a stronger case for thinking that the hurricane is largely to blame for the recent spike in claims can be found by looking at the unadjusted data on a year-over-year basis. As the next chart shows, the annual pace of new filings last week fell back to the trend that's prevailed over the past year: a decline of roughly 10% vs. the same week of 12 months previous. That's a signal that the labor market didn't collapse recently, and that more modest growth is coming.
Even so, there are still plenty of hazards to consider as the year winds down and so forecasts generally are more precarious than usual. Yes, the fiscal cliff factor remains an issue, which may bring trouble for the labor market and other corners of the economy, perhaps with devastating effects. But considering that raw claims data is again falling by roughly 10% a year suggests that the jobs market, while still struggling with slow growth, didn't suffer a death blow in the recent past.
Hurricane Sandy's lingering effects remains a “temporary setback for the job market,” advises Ryan Sweet, a senior economist at Moody’s Analytics, via Bloomberg. Looking ahead, “the job market is still very weak and it’s going to remain that way until we get some fiscal clarity,” he says.
Fiscal clarity, alas, may remain a rare species in the land of the Beltway follies, thanks to the risk known by the "worst metaphor" of the year. But no matter what you call the political nonsense in Washington, the potential for economic pain is quite real. What's more, the macro fallout, if it arrives, may linger a lot longer compared with the temporary torture from Sandy.
"The Congress and the Administration will need to protect the economy from the full brunt of the severe fiscal tightening at the beginning of next year that is built into current law--the so-called fiscal cliff," Fed chairman Ben Bernanke warned in yesterday's testimony in Congress via his prepared remarks. "The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery--indeed, by the reckoning of the Congressional Budget Office (CBO) and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession."
The labor market, in other words, may be facing a new round of suffering after all. But for the moment, there's no smoking gun for arguing that the suffering has already started for fundamental economic reasons. Political factors are another matter since our representatives in Washington insist on playing with loaded fiscal weapons.