Today's upbeat numbers on jobless claims raise fresh doubts about the implied warnings of a US recession via a markets-based view of the macro trend. New filings for unemployment benefits fell more than expected last week, dropping to 262,000 - close to the multi-decade low of 255,000 that was reached last July. There's still plenty of wobbly numbers around to keep everyone guessing. But until further notice, jobless claims no longer deserve a spot on the short list of key indicators to worry about.
This leading indicator is a volatile beast in the short run and so it's best not to take any one number too seriously. But the sight of a sharp reversal in recent weeks after a worrisome jump in new claims in the two months through late-January provides a welcome change from previous updates in 2016. Even better, the relatively reliable year-over-year trend is again signaling clearly that the labor market will grow in the near term. Indeed, claims fell 8% last week vs. the year-earlier level. In short, if you're looking for a convincing sign that a recession is near, you won't find it in the jobless claims data. Until we see claims consistently rising in annual terms, it's best to assume that this indicator is aligned with a growth bias.
"Even though it gives us only one side of the labor-market ledger, jobless claims are effectively a gauge on overall business sentiment," explains Millan Mulraine, deputy head of US research and strategy at TD Securities USA. Today's update is "a good indication that businesses are more inclined to hold on to what they have and add to that, as opposed to reduce their payrolls," he tells Bloomberg.
Are we guilty of cherry picking the data? Not really. Consider that there's also support for cautious optimism via a broad review of the macro and financial indicators. As discussed earlier today, the current big-picture assessment from several angles points to a US economy that will skirt a new recession. That doesn't mean that the weak growth trend of late is about to accelerate… or does it? The Atlanta Fed's revised estimate for first quarter GDP growth is currently +2.6%, based on yesterday's update (Feb. 17). Assuming the prediction holds, the US is on track to post a strong rebound after the stall-speed rise of 0.7% in last year's Q4.
Yes, that's a forecast, and we all know that forecasts come with fine print that forever leaves room for a healthy dose of skepticism. But for the moment, there's a touch less skepticism courtesy of today's jobless claims report.