U.S. Jobless Claims Drop To Lowest Level Since 1973

Includes: RINF, SPY
by: James Picerno

This is as good as it gets... at least by the standard of jobless claims. New filings for unemployment benefits dropped 13,000 last week to a seasonally adjusted 253,000 - the lowest since the Watergate scandal was consuming the Nixon administration. Taken at face value, today's numbers provide cover for dismissing yesterday's surprise decline in retail spending in March as noise.

"Jobless claims are running really low and all other labor market data are telling us that the economy is creating a lot of jobs," Patrick Newport, an economist at IHS Global Insight, tells Bloomberg. "This is further confirmation that the labor market is strong."

The upbeat outlook holds up in the year-over-year data too. Claims fell more than 12% last week vs. the year-earlier level (before seasonal adjustment). The numbers suggest, rather strongly, that economic growth is set to roll on for the foreseeable future.

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The perma bears counter that it's all a scam - the jobless claims data are being fudged for political reasons. There's no evidence to back up this claim, but the charge provides a convenient excuse for downplaying the sky-is-falling narrative.

Even if you're not inclined to embrace conspiracy theories, there's still reason to wonder why economic growth isn't stronger. The jobless claims figures suggest that we should be seeing GDP growth of 3% or higher. Maybe that's coming. But it's not showing up in the current run of nowcasts. Instead, it appears that the Q1 GDP report that's due on Apr. 29 will deliver disappointing news. The current GDPNow model via the Atlanta Fed is projecting stall-speed growth of just 0.3% (as of Apr. 13). The newly created NY Fed GDP nowcast looks better - 1.1% for Q1, as of Apr. 8 - but that's still far below the pace that the jobless claims data implies.

Perhaps the explanation is that the labor force has been cut to the bone in recent years, and there's little room for further cuts. In other words, perhaps there's a legitimate disconnect between claims and the macro trend. All the more so if you expect that robots will continue to steal jobs from flesh-and-blood workers.

Whatever the truth, jobless claims are telling us that there's nary a hint of recession risk on the near-term horizon and that job growth will remain strong. The outlook is somewhat more complicated, however, if you're prone to Machiavellian paranoia on matters related to data analytics at the US Labor Dept.