There are two ways to interpret today’s economic updates on weekly jobless claims and retail sales for December. If you’re inclined to see a recession coming, a view that appeals to some analysts, the numbers du jour offer some marginally stronger support for expecting trouble. But the latest reports are hardly game changers and so it’s not obvious that a moderately optimistic outlook is suddenly indefensible.
Let’s begin with jobless claims, which rose a hefty 24,000 last week to a seasonally adjusted 399,000—the highest since late-November. The latest jump brings us just under the psychologically distressing benchmark of 400k. Suddenly there’s a new question of whether the progress in recent weeks was another head fake? You can’t dismiss anything these days, but thinking that we're doomed (again) is still premature.
The standard caveat is worth repeating: jobless claims data is quite noisy in the short term and so drawing hard-and-fast conclusions from one report is risky. Far more important is the trend for this leading indicator, including its four-week moving average, which remains near its lowest level for new claims since the recession was formerly declared over as of mid-2009. The persistent decline in the four-week average since last spring has signaled a stronger labor market, and so far that's prediction looks good. Deciding if the latest rise in jobs creation rolls on is the subject of some speculation, but for now there’s no smoking gun in today's claims number one way or another.
Meantime, consider the unadjusted year-over-year change in jobless claims. As of last week, new filings for jobless benefits are lower by roughly 17%. In other words, the general trend in the labor market is still getting better, not worse.
Still, there’s plenty to worry about, and at the top of my list is the slowing growth rate in disposable personal income (DPI), as I discussed yesterday. My concern is that if the pace of increase for DPI continues to fade, it raises questions about the outlook for consumption, which in turn will influence the next phase of the business cycle. Today’s retail sales report isn't terrible (December sales are virtually unchanged at a 0.1% seasonally adjusted rise over November), but it doesn’t ease my anxiety for DPI's future either. Indeed, last month's retail sales rise was the slowest month for this series since last May’s modest decline.
The overall trend in retail sales offers a truer profile of where we may be headed, but here too there appears to be the potential for problems. Retail sales are up 6.5% for the year through last month. That’s actually quite good, but as the chart below shows the rate of increase has been descending steadily over the last three months. Is this a sign that the weakening trend in income growth for consumers has momentum and is taking a toll on consumption? That’s the fear and at the moment it can’t be dismissed as a potential trouble spot for the foreseeable future.
"The retail sales (data) suggests that spending isn't really picking up any momentum," says Sean Incremona, an economist at 4Cast Ltd. tells Reuters. Tim Quinlan, an economist at Wells Fargo Securities, agrees, telling Bloomberg: "Consumers pulled out all the stops to have a decent holiday season, but we’re seeing the momentum from that dropping off."
If the recent recovery in the job market also starts to fold, the business cycle’s goose may be cooked. But it’s too early to say for sure what comes next. Nonetheless, fresh seeds of doubt have been planted with today’s updates. The next question in the wake of this news is whether there’s any fallout in consumer sentiment? Tune in tomorrow for the January release of the University of Michigan Consumer Sentiment Index. Briefing.com reports that the consensus forecast calls for a moderate rise.