Tony Fratto: Initial Claims Conundrum

No single data point has left economists scratching their heads more this year than the continued elevated levels of weekly initial jobless claims.

A troubling trend continued this morning with the release weekly initial claims data for the week ended May 22 showing that 460,000 Americans filed for jobless benefits.

While this was a slight decline of 14,000 from last week, the numbers are far higher than anyone would have predicted at the beginning of the year. In fact, the claims data seem to be stuck in a range more commonly associated with recessions than expansions.

It’s a conundrum that is giving pause to those with bullish predictions of future job growth for the U.S. economy.

AP

With monthly job growth returning – albeit at a tepid pace for this point in a recovery – the narrative being written was that employers had halted job cuts and would soon be hiring again.

Weekly jobless claims peaked during the depths of the recession a year ago, with a 4-week moving average (smoothing for volatility) of about 620,000 claims.

Over the last three quarters of 2009 claims fell sharply, but for months now have been stuck in a range of 450,000-490,000 initial claims. The 4-week moving average today stands at 456,000 initial claims.

To put the initial claims data in perspective, a 4-week average of 456,000 initial claims is about the peak level of claims during both the 1990-91 recession and the 2001 recession. The scary fact is that that the level of initial jobless claims has now been sustained for six consecutive months.

At these levels of weekly jobless claims, we would expect to see relatively flat job creation – depending on workforce participation levels, not enough to bring down the unemployment rate any time soon.

We’ll all be looking for better clues about the jobs outlook when the Bureau of Labor Statistics releases payroll data for May next week, but if initial jobless claims remain at these elevated levels, we may all have to rethink those bullish job growth forecasts.

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Tony Fratto, a CNBC contributor, is Managing Director of Hamilton Place Strategies – a strategic economic policy and communications firm based in Washington, DC. He is a former White House Deputy Press Secretary for the George W. Bush Administration and Assistant Secretary of the Treasury. You can follow him on Twitter at http://twitter.com/TonyFratto.