New filings for unemployment benefits dropped to another post-recession low last week, the Labor Department reports. The case for expecting economic growth, in other words, just got a bit stronger.
Initial jobless claims slipped to a seasonally adjusted 348,000 for the week through March 17, the lowest level in four years. With each new low in this series, arguing that a recession is brewing looks a touch more challenged. It's dangerous to read too much into any single economic report, of course. That said, history shows that the onset of recession is accompanied by rising claims for unemployment, either in advance of the official recession start date (as determined after the fact by NBER) or in the early stages of a new downturn. That leaves three interpretations for the recent decline in jobless claims: 1) the pro-growth message is wrong this time; 2) claims will soon reverse course and trend higher to reflect deteriorating economic conditions that aren't yet reflected in new unemployment filings; or 3) the economy is poised for expansion for the foreseeable future.
A broad reading of the data favors the latter view. Granted, that's an opinion, but subjectivity is par for the course for evaluating the cyclical tea leaves in real time. Meantime, let's recognize that there are still troubling risks afoot, including the deceleration in the rate of growth for personal disposable income. But as long as jobless claims trend lower, and the decline translates into stronger job growth, as it has in the last three months, the forces of expansion still have the edge. It may be a small edge, and perhaps an artificial one due to an unusually warm winter. But the persistent descent in new jobless claims suggests that there's more than climate change driving the macro news of late.
Indeed, even some worrying trends that have been a concern seem to be fading. For instance, the slowing pace of industrial production has been worrisome, but last week's update leaves room for optimism with the second straight month of a higher year-over-year increase.
As for dismissing the drop in unemployment claims due to seasonal factors, that criticism looks weak. The virtuous cycle for new jobless filings holds up even when we look at unadjusted numbers on a year-over-year basis. As the second chart below shows, new claims have been consistently falling each and every week for nearly a year. That's a strong sign that the labor market's healing has momentum.
"On the labor front, we have dug a deep hole but we seem to be digging out of it," says economist Gus Faucher at PNC Financial Services.
Today's jobless claims news implies that the March employment report (scheduled for release on April 6) will show job creation in the private sector on par with the 200,000-plus gains in each of the previous three months. Nothing less than another robust jobs report is needed to minimize the potential for trouble. Today's claims update suggests there's still a good argument for thinking positively.