The ranks of the newly unemployed tumbled last week, as expected. The previous update
on weekly filings for jobless benefits reported a dramatic surge, but
many analysts--including yours truly--argued that the spike was weather
related and so it probably wasn't a sign that the business cycle was
slipping over the edge. Today's news provides some statistical support
for that relatively optimistic perspective.
New claims dropped 41,000 to a seasonally adjusted 410,000 for the
week through November 17. That's still high, and uncomfortably so,
especially as it relates to recent history. But for the moment, it's
reasonable to assume that the return to "normal" is underway, even
though it will take time to rid the data of the distorting effects from
Hurricane Sandy. Indeed, the storm-battered states of New Jersey and New
York reported a huge combined increase in new claims of 75,000 last
week. No one confused these two states as ground zero for strong
economic growth prior to the hurricane. Yet it's unconvincing to argue
that the ranks of the unemployed in NJ and NY would be taking flight to
this degree if the skies had remained sunny all along. Short of the
arrival of economic Armageddon in the days ahead, it's a fairly safe bet
that NY and NJ won't be reporting new claims of 75,000 per week going
forward, which implies that there's room for expecting further declines
in the national numbers. In fact, one could argue that it's impressive
that claims overall fell last week amid such a huge gain in these two
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Speculation about what it all means for a broader read on the economy
will wander near and far, of course. But a stronger case for thinking
that the hurricane is largely to blame for the recent spike in claims
can be found by looking at the unadjusted data on a year-over-year
basis. As the next chart shows, the annual pace of new filings last week
fell back to the trend that's prevailed over the past year: a decline
of roughly 10% vs. the same week of 12 months previous. That's a signal
that the labor market didn't collapse recently, and that more modest
growth is coming.
Even so, there are still plenty of hazards to consider as the year
winds down and so forecasts generally are more precarious than usual.
Yes, the fiscal cliff factor remains an issue, which may bring trouble
for the labor market and other corners of the economy, perhaps with
devastating effects. But considering that raw claims data is again
falling by roughly 10% a year suggests that the jobs market, while still
struggling with slow growth, didn't suffer a death blow in the recent
Hurricane Sandy's lingering effects remains a "temporary setback for
the job market," advises Ryan Sweet, a senior economist at Moody's
Analytics, via Bloomberg. Looking ahead, "the job market is still very weak and it's going to remain that way until we get some fiscal clarity," he says.
Fiscal clarity, alas, may remain a rare species in the land of the Beltway follies, thanks to the risk known by the "worst metaphor"
of the year. But no matter what you call the political nonsense in
Washington, the potential for economic pain is quite real. What's more,
the macro fallout, if it arrives, may linger a lot longer compared with
the temporary torture from Sandy.
"The Congress and the Administration will need to protect the economy
from the full brunt of the severe fiscal tightening at the beginning of
next year that is built into current law--the so-called fiscal cliff,"
Fed chairman Ben Bernanke warned in yesterday's testimony in Congress
via his prepared remarks.
"The realization of all of the automatic tax increases and spending
cuts that make up the fiscal cliff, absent offsetting changes, would
pose a substantial threat to the recovery--indeed, by the reckoning of
the Congressional Budget Office (CBO) and that of many outside
observers, a fiscal shock of that size would send the economy toppling
back into recession."
The labor market, in other words, may be facing a new round of
suffering after all. But for the moment, there's no smoking gun for
arguing that the suffering has already started for fundamental economic
reasons. Political factors are another matter since our representatives
in Washington insist on playing with loaded fiscal weapons.