Talk about a reversal of fortunes! Last week's filings for new jobless claims soared 66,000 to a seasonally adjusted 374,000, which is the highest weekly total since March, according to a division of the Labor Department that's still publishing economic reports. A substantial slice of the increase is reportedly due to playing catch-up with the data in the wake of a computer glitch that affected updates in several states. According to Bloomberg, "The issues in California accounted for about half the jump in applications last week and the dismissal of non-federal employees after Congress failed to compromise on a budget accounted for about another 15,000, a Labor Department spokesman said as the data was released to the press."
The question is whether today's hefty increase in claims reflects troubles in the economy vs. another round of temporary data distortion that will eventually be smoothed over in the coming weeks? For a number of reasons it's hard to say at this point, although it's still reasonable to assume that moderate growth will endure until or if the data tells us otherwise. The bad news is that evaluating the big picture isn't getting any easier while the fiscal follies in Washington drag on. (As one wag put it, they shut down the circus but the clowns are still working.) Thanks to the government shutdown, which has postponed economic reports over the past week, there's quite a bit more mystery about the macro trend at the moment. Nonetheless, today's extreme jump in claims isn't easily dismissed, at least not yet. But as a general rule, it's best not to go off the deep end based on one data point--particularly one that's as volatile in the short term as claims data.
Keep in mind, too, that the broad trend in the economy was still positive in the latest U.S. Economic Profile as of late-September. In addition, this week's update of the Macro-Markets Risk Index remained at a level that suggests that business cycle risk remains low.
The burning question: How will the numbers compare in the immediate future, including next week's jobless claims update? While we're waiting, here's how today's release looks in historical context. As you can see, it looks quite chilling. All the more so because the year-over-year change is now above zero-last week's filings for unemployment benefits increased 6.3% vs. a year ago. That's the first annual gain since March.
The occasional rise in claims on a year-over-year basis is usually noise. If the trend prevails, however, that would be a dark sign for the business cycle. For the moment, it's unclear if today's number is a sign of things to come. It's still premature to conclude that we're at a major turning point for the economy. Much depends on how the numbers overall compare in the days and weeks ahead. Assuming, of course, the government gets its act together and actually publishes the data.