Jobless claims dropped again last week, offering more evidence for thinking that the October pop in new filings for unemployment benefits wasn’t a statistical harbinger of cyclical doom after all. Once again the lesson is clear for poking through this data set: Remain wary of the latest update and instead focus on the longer-term trend. By that standard, the numbers suggest that modest healing in the labor market continues, a trend that's been in force for most of the past 18 months.
New claims fell 8,000 last week to a seasonally adjusted 355,000. That’s near the lowest level since the recession ended in mid-2009.
A stronger signal that the labor market is still moving forward, if only moderately: Unadjusted claims tumbled last week by nearly 12% vs. the same week a year ago. As the chart below shows, that pace of decline is in line with the trend that’s prevailed for more than a year, save for the occasional interruption. As such, the year-over-year trend in the claims numbers before seasonal adjustment tells us that nothing much has changed, and that’s a good thing. In sum: Fewer workers are applying for unemployment benefits as the weeks and months pass. No explanation required for why that's more than a trivial plus.
Today’s update on new claims delivers another positive data point for the October economic profile. Earlier this week we learned that the services sector is still biased toward growth as of last month, and a similar story applies to the manufacturing sector in October. In addition, the initial estimate for October payrolls shows the highest monthly gain (+184,000) for private sector jobs since February.
Is the stage set for stronger growth overall? It might be, if the fiscal cliff wasn't threatening and Europe's economy wasn't still reeling. Alas, reality is somewhat different. Of course, the potential for defusing the fiscal cliff risk is plausible if not exactly probable. Much depends on whether the folks in Washington can get their act together. For what should be obvious reasons at this late date, your editor is skeptical, albeit in a hopeful sort of way, if such a thing is possible.
The latest comments from Republicans and Democrats in the wake of the election are certainly encouraging for thinking that the Beltway crowd can finally work together and keep us from falling over the edge. Then again, talk is especially cheap in Washington and the only thing that matters is action -- action that in this case must come soon. We're talking weeks, not months, given the fact that automatic tax hikes and spending cuts are set to roll in the new year.
Europe, meanwhile, is a tougher problem, given the deteriorating economic news for Germany, the Continent's largest economy. "Europe is going through a difficult process of macroeconomic rebalancing and adjustment, which will last for some time still," says Olli Rehn, the EU's economic and monetary affairs commissioner. "Market stress has been reduced but there is certainly no room for complacency."
Back in the U.S., however, the economy seems to be holding up ... so far. That was certainly true through September and the third quarter generally. The October updates so far suggest that the positive momentum has a decent chance of rolling on, although it's still early and the majority of last month's numbers are yet to come. For now, however, let's recognize that recession risk in the U.S. still looks low, based on the incoming numbers. When and if that changes, the data trend will change. Meantime, cautious optimism on the U.S. is still a reasonable outlook.