Last week’s decline in initial jobless claims puts the data within a statistical hair of a five-year low. That’s a bullish sign for the labor market and, by extension, the economy. Indeed, the latest dip in new claims strengthens last week’s encouraging news of private nonfarm payrolls growth in February. Some analysts continue to press the case that the U.S. economy is in recession, or is slipping into darkness as we speak. But the numbers say otherwise, starting with the labor market, which continues to grow at a modest pace.
But let’s focus on the data du jour — jobless claims, which fell to a seasonally adjusted 332,000 last week. That’s just slightly above the 330,000 mark from seven weeks earlier, a five-year low. Meanwhile, the four-week moving average for claims, a widely watched number, is now at a five-year low.
Looking at the year-over-year change in unadjusted data confirms that the recent declines in new filings for jobless benefits reflect genuine improvement. As the next chart shows, claims fell 7% last week compared to a year ago. The drop is roughly in line with what we’ve been seeing for many months.
The message here is that the labor market continues to heal, which is no trivial point for evaluating the state of the economy. The decline in new claims, which hit a rough patch late last year, has resumed its downward trajectory. This is good news, of course, when you consider that this data series is a valuable leading indicator for the business cycle. We can't rely on it exclusively, but history implies that only when claims are rising on a year-over-year basis is the outlook deteriorating. But as the chart above reminds, that tipping point is nowhere in sight.
The encouraging signal in claims is hardly an outlier when we look to other indicators. The retail sales report for February was upbeat, and latest numbers on the ISM Manufacturing and Services indices point to ongoing if not accelerating economic growth. No wonder that the markets are showing minimal signs of stress these days. The February economic profile, in other words, continues to trend positive.
Next up is tomorrow’s industrial production report for February, and the outlook hints at a decent if unspectacular increase in output. Looking ahead to March, however, comes with a bit more uncertainty than usual, thanks to the fiscal follies in Washington and the potential for macro blowback. For the moment, however, the broad trend still looks good, based on the available numbers. Yes, that can change. In fact, you can count on it ... at some point. That said, it's premature to declare the game over while the team is still running.