Initial jobless claims dropped again last week, slipping to a new five-year low. The news is an upbeat counterpoint to the weak economic numbers released earlier this week. New filings for unemployment benefits retreated to a seasonally adjusted 324,000 for the week through April 27, the lowest since January 2008. It's been easy to interpret recent data as a sign that the economy's stumbling again, perhaps fatally, but today's release looks like a statistical stay of execution, if only for a day.
In fact, history strongly suggests that new recessions don't begin when jobless claims are dipping to fresh multi-year lows. Anything's possible in economics, but some things are improbable. Today's release doesn't immunize the weak numbers we've seen recently, including yesterday's sluggish pace of payrolls last month via ADP's estimates. Earlier today I also noted that inflation expectations are trending lower as well, perhaps setting us up for macro trouble down the road. Those warning signs are still relevant, of course, but this morning's claims report tells us that it's still premature to assume that the business cycle is destined for contraction in the near term.
Claims data is notoriously volatile from week to week, of course, but the fact that the four-week average is now in close pursuit of the weekly estimate is an encouraging sign for thinking that today's update is more than noise. There's also good news in the chart of the one-year change in the unadjusted data (before seasonal adjustment), as the next chart shows. The ongoing fall in claims each week from year-earlier levels is a robust signal for arguing that the labor market isn't on the precipice of trouble. No one will confuse the economy's ability to mint jobs as impressive, but it's not yet so weak as to think that another recession is fate in the immediate future.
But what of the other disturbing news from earlier this week, and the sluggish numbers for March for that matter? How are we to square this circle of mixed results? For now, the reasonable view is that we're knee-deep in another spring slowdown, which for one reason or another has become the norm in recent years. Why that's been the case needn't concern us here. Rather, the question is whether the broad picture of economic and financial data tells us that the economy has passed the point of no return? Some analysts are quick to answer "yes," but a fair reading of the numbers (including today's jobless claims data) suggests otherwise.
Could that change? Yes, and perhaps soon. But the worst you can say for now is that we're suffering from a mixed bag of data signals. That may be the precursor to deeper woes, although it could just as easily turn out to be another head fake that leaves the bears running for cover. How will we know which outlook has the upper hand? When a preponderance of the indicators speak loud and clear. The good news is that we're still well short of that tipping point, as a recent profile of the US economy through March suggests.
What's the lesson in all of this? A familiar one, namely: The biggest hazard in the art/science of business cycle analysis is the popular sport of rushing to judgment.