New filings for unemployment benefits dropped again last week, falling 4,000 to a seasonally adjusted 364,000. That’s a relatively modest decline, but it’s encouraging because it follows last week’s big drop that pulled new weekly claims down to a 3-1/2 year low. The fact that the previous tumble didn’t reverse offers one more data point for thinking that the recent slide in jobless claims is the real deal. If so, the outlook for the labor market is somewhat brighter, which of course is the critical variable these days in reading the macro tea leaves for the U.S.
The last time initial claims were this low was April 2008. There’s no assurance that the downward trend of late will continue, but if it does it’s going to get tougher to argue that the labor market isn’t set to grow at a faster rate in the months ahead.
For another perspective on the trend in jobless claims, let’s review the year-over-year percentage changes without the seasonal adjustment. As the second chart below shows, a virtuous cycle seems to be building here as well. Claims were nearly 16% lower last week than at the same time in December 2010. That's the biggest decrease since August. The drop isn't as pronounced compared with the seasonally adjusted weekly data, but progress is still progress. And when you see declines of some magnitude from both perspectives, it's clear that there's more than statistical noise unfolding.
The true test of this leading indicator’s influence will be confirmed (or denied) in future employment reports in the months ahead. History suggests that a drop in firings is an early signal of more hirings ahead, but until we see the numbers we're all doubting Thomases. The next update arrives on January 6, when the December payrolls numbers are released.
"Claims have been improving pretty rapidly,” Sam Coffin, a UBS economist tells Bloomberg. "The labor market is gaining some momentum. The question about the first half of next year is how rapid growth is."
On that note, we should expect that claims will back up at some point in the weeks ahead. This is a volatile series and so it's likely that we'll see wide swings in the short run. The question is whether there's a trend here, namely, a falling trend.
It's getting easier to answer in the affirmative, but no one needs an excuse these days to wonder if we're setting ourselves up for disappointment. It's not clear that the eurozone troubles are solved and so the potential for one of those infamous exogenous shocks can't be dismissed just yet.
Meanwhile, in other economic news today the Bureau of Economic Analysis reports that U.S. GDP growth has been revised down to 1.8% for the third quarter from the previous 2.0% estimate. Before that, in the first round of guessing, the government said the economy expanded by 2.5%.
In other words, there's a lot riding on the jobless claims numbers. If there's a case for thinking that the economy will continue growing, the single-best source for that optimism resides in jobless claims. So, yes, today's the first day of winter. The question is whether there's an early spring approaching for the business cycle. There are lots of arguments for dismissing such a radical idea, but there's at least one new number that offers a cup of cheer. 'Tis the season.
"When you fire fewer people, hiring unquestionably follows," advises Dan Greenhaus, chief global strategist at BTIG. True? We'll find out soon.