Today's weekly update on jobless claims is a good example of how the
inherent noise in this data series can mislead us if we're overly
focused on the most recent data points. New filings for jobless benefits
rose 4,000 last week to a seasonally adjusted 371,000, pushing claims
up to the highest level in a month. The rise is a modest surprise
relative to expectations,
which projected a slight decline, although the previous week's total
was revised down and so the net effect is close to neutral. In any case,
today's numbers look a bit discouraging, but a deeper review paints a
substantially brighter picture.
First, let's start with the weekly seasonally adjusted figures, which
receive most of the attention. As the chart below shows, new claims
have been stuck in neutral recently. By some accounts, that's all you
need to know. But if we're looking at this series for a robust read in
the context of analyzing the business cycle, we'll have to dig a bit
deeper.
In particular, let's review the year-over-year percentage change for
the raw claims numbers—before any seasonal adjustment. By this measure,
last week's report delivered good news: claims dropped more than 14% for
the week through January 5 compared with the year-earlier figure.
That's the biggest rate of annual decline since last October. By itself
it could be more noise, of course. But as the second chart reminds,
annual declines of 5%-to-10% have been the general rule for the past
year. The bottom line: new claims continue to trend lower, even if it's
not obvious in the latest report.
This is no trivial point. When you review changes in jobless claims
on a year-over-year basis across the decades it's clear that declines by
this measure are strongly correlated with broad economic growth. One
indicator alone is always suspect, of course, which is why it's
essential to monitor a broad array of economic and financial indicators.
For some perspective on that front, here's my recent update on the US economy's profile, which continues to look encouraging as of January 8.
The trend in jobless claims doesn't disagree. Does that mean there's
nothing to worry about? Hardly. Jobs growth is positive, and several
indicators for the labor market are moving in the right direction, as
are a number of other metrics for the economy. But jobs growth is modest
by historical standards and there's no shortage of hazards that could
create trouble tomorrow, next week, and beyond.
At the top of the list of potential troubles: politics, namely:
the debate over the debt ceiling.
In what by now has become a familiar and disturbing story, our
representatives in Washington are again moving perilously close to
derailing the economy's modest growth trend of late with nonsensical
arguing over short-term fiscal issues. Looking solely at the numbers
suggests the recovery rolls on. The main question for the moment is
whether the Beltway crowd will engineer an alternative reality.