Jobless Claims Jump Up By 36K, Could Signal a Weaker Economic Recovery Ahead

This morning’s disappointing jobless claims number hints that the jig is up and the economy’s set for another dip. There is no way to put a rosy spin on this morning’s news that new claims for jobless benefits increased. Initial claims jumped up by 36,000 to 482,000 for last week (the week through Jan 16^th). It is difficult to put a rosy spin on this morning’s news that new claims for jobless benefits increased. Let’s look at a few reasons this weeks initial claims report is cause for concern for the economic recover which many government officials claim is under way.

First, last week’s initial claims increase is the biggest weekly jump in absolute terms since early May 2009. It is also the largest weekly percentage rise since January 2009. The third reason for concern is the increase to 482,000 initial claims last week is slightly higher than the previous peak of 480,000 we saw in mid-December. The trend seems to be changing and the pace of layoffs is not slowing as much as expected.

The optimistic spin is that last week’s surge in initial claims is still only statistical noise in a broader trend of still-falling jobless claims. And the hope is basically one of remembering that weekly jobless claims numbers can be quite volatile, up and down. Many media outlets used the term “unexpectedly jumped” today in their headline when reporting this week’s initial claims number. I do not think anyone should be shocked by the higher claims, our road to recovery will be a longer road then the one some government officials and the media portray. These current levels of initial claims is still associated with net declines in payrolls, however the declines are getting smaller over time. For the economy to show a net addition of jobs we will need to see initial claims drop to a level of about mid to upper 300K on a consistent basis.

Other explanations offered to explain the jump in initial claims is that they are due to administrative backlogs which piled up during the holidays. Could be but until we see more numbers in the weeks ahead we really don’t know if today’s number is a blip or a trend change and a sign of new troubles which could signal a double dip recession.

A big test still lies ahead for the economy. Having rebounded from the brink of a depression of late-2008 & early 2009, the challenge now is one of creating and sustaining growth that ends up as a net plus in job gains. That's going to be a much tougher job than running the Feds printing presses which spit out greenbacks.

Meanwhile, the potential for mixed sentiment is lurking. The first estimate of GDP is scheduled to be release next week on Friday January 29th which promises to create a bullish aura that may be misplaced. It is not unreasonable to expect a strong fourth-quarter GDP number, which will most likely be revised lower later like Q3 was.