There's good news and bad news in today's weekly update of initial jobless claims. The good news is that new filings for jobless benefits fell last week, albeit by a slim 1,000 to a seasonally adjusted 367,000. That's also the bad news. A more convincing drop--ideally to new post-recession lows--is what's needed to boost confidence. Instead, we seem to be stuck in neutral, and so there's no resolution yet for the main question weighing on the economic outlook: Are the last two months of weak growth in private payrolls signs of deeper troubles for the U.S. economy?
It's surely encouraging that claims have remained relatively low in recent weeks. The outlook for the labor market would be considerably darker if new filings for unemployment had jumped sharply in the wake of the March and April slowdown in jobs creation. Actually, it was easy to think that the economy's goose had been cooked when new claims surged to nearly 400,000 last month. But the danger quickly passed and claims have since fallen back to near four-year lows.
It's also encouraging that the unadjusted year-over-year change in jobless claims continues to fall at a strong pace. Using last week's numbers, claims are roughly 15% below the level from 12 months earlier. That's near the biggest decline rate for the past year. The fact that the annual retreat continues at a robust pace implies that the labor market will continue to heal and so there's a case for arguing that the latest seasonally adjusted number can be dismissed as short-term noise.
"Part of the reason we've seen consumer spending hold up is because we've stopped seeing a large amount of layoffs," Drew Matus, senior U.S. economist at UBS Securities, tells Bloomberg. "The general trend in jobless claims is lower."
There's some reason to argue the point based on today's update, but the year-over-year decline rates largely trumps those worries. Nonetheless, the recent inability of the weekly seasonally adjusted numbers to poke down to new lows feeds concerns that the labor market's healing process is slowing.
Meanwhile, two large risk factors of late offer mixed messages these days as well. Oil (West Texas Intermediate) has fallen under $100 a barrel for the first time since February and that's helping to pull gasoline prices down. All things equal, lower fuel costs are always helpful for juicing the economy. The question is whether all things are equal these days. In particular, are the growth-boosting benefits of lower energy prices offset by the revival of euro risk.
One step forward, one step back.
"The initial-claims numbers are consistent with the notion that while the labor market is not as robust as December-February data suggested, neither does it appear to be in the process of falling apart,"says Joshua Shapiro, MFR's chief U.S. economist.