US Jobless Claims (Still) Point To A Strong Labor Market

The outlook for fourth-quarter GDP growth is looking shaky at the moment, but the antidote for macro worries is still firmly entrenched in the labor market. Payrolls have perked up in recent months and today’s release of new unemployment filings hints at more of the same as fresh numbers roll off the government’s assembly line in the weeks ahead.

Initial jobless claims fell 5,000 in the week through Dec. 19 to a seasonally adjusted 267,000, the Labor Department reports. The slide leaves claims close to the multi-decade low of 255,000 that was reached in mid-July. The big-picture trend for the US economy still looks soft, but the ongoing sight of bullish readings for jobless claims keeps hope alive that the numbers will deliver brighter comparisons generally on the other side of next week’s New Year celebrations.

Indeed, claims have been consistently falling by a healthy degree in year-over-year terms. That’s an encouraging signal for anticipating that whatever ails the US economy these days won’t deteriorate into an economic contraction any time soon. Claims fell nearly 5% for the year through last week, marking the 67th consecutive week of annual declines.

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Nonetheless, a broader reading of the numbers suggests that something isn’t quite right with the core trend for the US economy. That’s a bit odd because history advances the idea that claims bumping around at such low levels should be accompanied by substantially stronger growth. Yet as I discussed earlier today, the outlook for US GDP growth in Q4 is moving in the wrong direction.

Today’s claims update, on the other hand, paints a materially brighter profile. Should we believe the data du jour and conclude that the trend will soon strengthen? Maybe, although let’s reserve judgment until we see how December’s nonfarm payrolls compare when the numbers arrive in early January.

Meantime, the leading indicator for the labor market continues to tell us that the US recovery will survive and perhaps even thrive in the new year.

“There is no evidence that the pace of layoffs has budged, and more broadly, labor market conditions remain robust,” wrote Stephen Stanley, chief economist at Amherst Pierpont, in a research note to clients.

The mystery of the moment is why the upbeat summary of the job market doesn’t enjoy clear and unambiguous support in the economic growth trend overall. Perhaps we’ll find some clarity shortly after the crowd bids farewell to 2015 in next Thursday’s revelry.