U.S. jobless claims still showing no signs of any slowdown

March 9, 2016

Attendees at a job fair line up to gather information about a prospective employer in a Washington hotel, August 6, 2009. The number of U.S. workers filing new claims for jobless benefits fell sharply last week, a government report showed on Thursday, boosting views that the labor market and the economy were stabilizing.    REUTERS/Jason Reed   (UNITED STATES BUSINESS EMPLOYMENT) - RTR26GVC

The U.S. economy may have had a few fits and starts of late, first in manufacturing and then non-manufacturing industries, but weekly jobless claims data are likely to keep at bay speculation the job market is about to come unhinged.

Initial jobless claims — considered by many as the most solid indicator measuring the health of the job market because it’s a count of real people not a representative survey — are forecast at 275,000 in the week ended March 5, according to a Reuters poll.

That median forecast has sat on the lower end of the spectrum of reported new unemployment benefit claims in each week since the start of 2016, when close to 300,000 people queued up for state assistance.

Jobless claims undercut even the lowest forecast at the start of the year, although for the most part it has stayed within the forecast range.

The top 20 most accurate forecasters on the indicator in Reuters polls are all within a few thousand of 275,000. The most pessimistic is 295,000 from Morgan Stanley.

So long as the needle stays around current levels, past correlations with other data show the economy faces no real danger of a recession.

Claims

With the unemployment rate at 4.9 percent and still falling, there are few reasons to worry. The economy added 242,000 jobs in February — 50,000 more than forecast. Average earnings fell on the month, but economists say that has more to do with the timing of measuring pay that month than a fundamental downturn.

BofAML economists wrote in a note to clients:

Bears write off the continued labor market strength as a lagging indicator. Yes, over-200,000 payroll growth is unsustainable and will decelerate over time. But a variety of leading indicators do not suggest a recessionary slowdown in employment is looming.

The good news is that claims have been quite well-behaved of late. After creeping up to just shy of 300,000 in mid-January — raising red flags among some of the doomsayers — we are back below 280,000.

Jim O’Sullivan, the most accurate U.S. economic data forecaster in Reuters Polls last year, relies heavily on jobless claims for a reading of how well the economy is doing. He remains optimistic, telling clients in a note this week not to worry too much unless jobless claims trend higher.

That said, claims are well above a four-decade low of 255,000 struck in July of last year, which coincided with annualized economic growth of a relatively modest 2 percent in that quarter. It slowed half that rate in the following quarter.

A surging dollar and weak global trade — weak enough to warrant another warning from the International Monetary Fund this week — has clearly taken a heavy toll, particularly on manufacturing and exports.

Even the non-manufacturing ISM employment index has already dipped below the 50 mark that separates growth from contraction, a first since February 2014. But most are treating that sudden dip as a blip.

Judging just by the length of past expansions, and how low claims generally go before rising again, the risk of a more substantial increase sometime before long appears likely.

As the chart below shows, once jobless claims start to rise substantially, a recession nearly always follows. 

gateway

The main difference this time is the U.S. Federal Reserve has only just begun raising interest rates.

— with analysis by Krishna Eluri 

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