Thursday’s weekly update on initial jobless claims tells us that nothing much has changed. That’s a good thing when it comes to evaluating the business cycle at the moment. This leading indicator fell modestly by 6,000 last week to a seasonally adjusted 361,000, the Labor Department reports. That’s near a four-year low, a sign that recession risk is low.
With Thursday's claims update in hand, it’s getting easier to argue that the past several months represent a temporary setback in the otherwise ongoing but slow downtrend in new filings for jobless benefits. If the labor market’s capacity for growth was truly collapsing, as some pessimists have argued, there’d be a clearer sign via deterioration in the claims numbers. So far, however, arguing on behalf a darker view is a stretch based on what we know as of this morning--a point supported by July's rebound in the growth of private payrolls.
The trend in jobless claims is clearer when we strip out the seasonal adjustments and look at the year-over-year percentage changes through time. On that score, the message is a familiar one relative to recent history: a respectable rate of decline. For most of the past year, the annual fall in new claims has fluctuated around -10%. That’s a compelling sign that the labor market continues to heal, albeit slowly. The trend also suggests that a recession hasn't started recently, or that a contraction is poised to strike in the very near future.
Jobless claims are but one statistic, of course, and so we can’t invest too much confidence in this series alone (or any one series, for that matter). But if we consider a broader review of data published for July so far, and preview the evidence for “nowcasting” recession risk, it appears that the low threat that prevailed in June will continue through last month. A bit more than half of the economic and financial indicators that I track for estimating recession risk have been published for July.
Of the numbers reported, roughly 80% are trending positive (I'll review the details later this month, when we have more economic numbers available through July). Short of a dramatic collapse in the yet-to-be-published numbers for last month, the outlook for the full reading on July is encouraging, in part because of the ongoing year-over-year decline in jobless claims.
Yes, this analysis could change on a dime if, say, the euro crisis takes a sharp turn for the worse or one of several brush fires in the Middle East explodes into something far darker and drives the price of oil to the heavens. And let's not forget the fiscal-cliff risk that lurks for the U.S. Generally speaking, there's no guarantee that a broad review of the recent past will save us from unknown unknowns that could infect the numbers for August and beyond. The future, in short, will continue to play all its devilish tricks on us.
It's also worth reminding ourselves that an economy that appears to be avoiding recession risk isn't the same thing as an economy that's healthy and growing at a strong pace. Quantifying recession risk, in other words, is a separate and distinct effort from assessing the qualitative aspect of economic growth and what that implies for the future.
In the meantime, don't mistake a forecast for a sober reading of the recent past. But using the numbers available to date, and making reasonable assumptions about what those numbers tell us overall, it's still hard to make a convincing case that a recession is upon us. When that analysis changes, as it one day will, you'll read about it here. In the meantime, cautious optimism rolls on.