Today's unexpected drop in jobless claims — the third in a row — is prompting a rethink of the December jobs report and even some to wonder if we have finally turned the corner on job growth.
Jobless claims dropped last week to 364,000, the lowest level since April 2008, the second week in a row that economists have been surprised by a decline.
“We are encouraged that these data point to a gain in private sector employment north of 200,000 in December,’’ wrote John Ryding at RDQ Economics.
That puts Ryding above the current consensus for December payrolls, which looks for job gains of 140,000 overall (government and private sector) and 160,000 for the private sector. The forecasts look for the unemployment rate to tick up to 8.7 percent from 8.6 percent when the December jobs number is reported Jan. 6.
Despite concerns about reading too much into the volatile weekly claims data, it seems likely that the consensus forecast will push higher.
"One unexpectedly low number can easily be a fluke; two are interesting; three are telling us something real is happening in the labor market," wrote Ian Shepherdson of High Frequency Economics.
He noted that the claims numbers only report firings, “But if hiring is rising as layoffs slow, then 250k+ (monthly job growth) ought to be reached before the end of Q1.”
Drew Matus of UBS said there is no doubt.
“We turned the corner months ago," Matus said. "Only in the alternate universe where the glass is always half empty would 140k jobs per month be seen as bad. Given population trends, that could be more than enough to pull down the unemployment rate.”
Matus noted that the separate household survey has been showing average job growth of 330,000 a month, more than double the payroll survey. (Economists generally don’t rely on the household survey because it is more volatile and uses a smaller sample than the payroll survey.)
There’s reason to be skeptical that the improvement will show up in a lower unemployment rate in the household survey. Since the recession ended in June 2009, the unemployment rate has disconnected from jobless claims for reasons economists don’t fully understand.
The current level of jobless claims suggests an unemployment rate closer to 6 percent, or at least one that is significantly lower than the current 8.6 percent. One reason could be the persistence of long-term unemployment, making this recovery markedly different from most in the post-war period.
The main concern over making too much of the current claims report centers on the time of year. December sees lots of seasonal hiring by retailers that could be distorting the data. More importantly, the first week of January is subject to the biggest seasonal adjustments of the year as the data crunchers try and take account of all the temporary workers who are laid off. That makes this a tough time to bet on a significant change in the jobs market.
But the claims data does not stand alone. The National Federation of Independent Business’s closely followed Small Business Optimism Surveyshowed an uptick in hiring and the employment components of the Institute of Supply Management monthly survey have remained positive for both the manufacturing and services sectors.
Significantly, this week’s claims data shows improvement during the same week in which the Labor Dept. conducts its survey for the December payroll survey.