Since we experienced a severe economic trauma due to the subprime financial crisis, there has been an almost reflexive disbelief in the durability this economic expansion. There are times when I would count myself amongst the disbelievers. For example, during the shale oil bust, I worried that Fed rate hikes would be the straw that broke the camel’s back. But time and again, this economic upturn has shown resiliency.
The one measure I look at that best encapsulates the resiliency is the initial jobless claims figure released by the US Department of Labor. They are almost dead-on real-time data. The series is released weekly, so you get frequent updates. And crucially, at economic turns, they are coincident indicators, even predictive, with no few ‘false positives’.
The latest read through the week that ended October 14th is 222,000. That’s the lowest figure since March 1973. And while I hesitate to make cross-cycle comparisons since the economy between 1973 and 2017 has changed dramatically in size and who qualifies for unemployment benefits, 222,000 is clearly a low number. The 4-week average claim number is 248,250. A year ago, that number was 251,500.
So what jobless claims data are telling us is that in the last year, the labor market has been good enough to prevent more people from filing claims for unemployment insurance. That basically means that fewer people are losing their jobs. And when fewer people lose their job, US households feel free to spend, underpinning consumer spending numbers, business confidence and the whole US economy.
Bottom line: You’re not going to get a downturn with a jobless claim number this low. The Atlanta Fed’s GDPNow number for Q3 is running at 2.7% as of the latest revision yesterday. So the US economy seems to be at or slightly above the 2%ish growth track it has been on for some time. Nothing on the horizon says that will change.
