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New applications for unemployment benefits unexpectedly increased during the first week of July, although the pop is probably noise. July data tends to be distorted by so-called retooling activity in the auto sector, and therefore week-to-week comparisons at this time of year are suspect -- more so than usual. Even if you take today's number as gospel, there's still plenty of room for optimism. Reviewing year-over-year comparisons, which strips out most of the seasonally volatility, suggests that moderate growth in the labor market remains intact and may even be set for something better in the months ahead.

Granted, a steady-as-it-goes diagnosis isn't obvious if we focus on recent numbers. Last week's claims increased 16,000 to a seasonally adjusted 360,000, the highest since mid-May. The four-week average also ticked higher.

A recap of the latest data points implies that the labor market is treading water at best. But that interpretation looks weak when we consider unadjusted claims data (i.e., before seasonal adjustment) on an annual basis. This perspective is considerably more reliable for assessing the big-picture trend. As the next chart shows, new filings for jobless benefits fell 13% last week from the year-earlier level. That's the biggest year-over-year decline by this accounting since mid-January.

The year-over-year trend sends a strong signal that the labor market continues to heal as the pace of layoffs slow. This isn't obvious over the last few weeks, but the main value for analyzing the labor market and estimating the business cycle from the vantage point of this data series comes through year-over-year comparisons. By that standard, the outlook for moderate growth in jobs creation -- and for the economy overall -- still looks encouraging.

Even better, there's still a fair amount of corroborating support for this outlook based on a broad review of macro and markets numbers, as I discussed a few weeks ago. Making assumptions about the future still comes with all the usual complications, but the primary trend in the data overall still points to moderate growth for the near term.

Source: Jobless Claims Rose Last Week, But The Trend Is Still Favorable