Jobless claims fell last week to a level that’s close to a five-year low. As a bonus in today's data dump, the government also revised second-quarter GDP growth higher by a healthy degree: 2.5% vs. the preliminary 1.7% estimate. Today's newly minted Q2 estimate is also quite a bit stronger than Q1's 1.1% gain. The overall message, of course, is that the economy remains on a moderate growth track, or so the latest reports imply. That’s been the message all along, albeit with fits and starts from time to time. The ongoing capacity for the bears of macro to consistently argue the opposite suggests a predilection to ignore the broad sweep of numbers.
Consider the latest update to the trend in jobless claims. As the chart below reminds, the decline and fall of new filings for unemployment benefits has been convincingly persistent in recent months. The week-to-week data points bounce around a lot, opening the door for creative thinking on any number of fronts. But the comparatively steady descent in the four-week average implies that the labor market is still healing.
A stronger clue for thinking that the labor market will continue to mint jobs on a net-positive basis for the near term is evident in the ongoing decline in jobless claims in annual terms, before seasonal adjustment. As you can see from the next chart, new claims are slipping at a relatively steep pace vs. relative to year-earlier levels. That's a potent leading indicator for anticipating another round of growth in next week's payrolls report for August (scheduled for release on September 6).
When you consider the trend in jobless claims in context with a broader look at the economic and financial indicators, the big picture suggests that the odds remain encouraging for expecting the expansion to roll on. Are there risks to this forecast? Yes, of course—there are always risks that may derail the trend in spite of our best efforts to divine the future and transcend uncertainty. What are the possibilities for trouble? The sky’s the limit. But based on the numbers available today, and using reasonable assumptions based on history, it’s still hard to make the case that the business cycle is slipping into the ditch. For a few diehard bears, however, that’s a radical bit of analysis.
Granted, we must remain open to the idea that the relatively rosy outlook that currently prevails can, and one day will, change. But not today, and probably not for the immediate future. When the trend does change for the worse, and an in econometrically convincing manner, I won’t be shy about pointing out the new threat of an approaching storm. Meanwhile, the macro skies continue to look relatively clear.