Sharp drop in jobless claims argues against double-dip recession

Recent reports on the economy, including falling housing starts, sluggish industrial production, and the latest downward revision in 3Q GDP have given proponents of the double-dip recession argument (or a W-shaped recovery) added ammunition in recent weeks. 

But today’s report from the Labor Department of a steep decline in weekly jobless claims is probably the most solid argument that the slow and fragile economic recovery may be on a firmer foundation than many believed possible.

Weekly initial jobless claims fell 35,000 in the week ending November 21 to 466,000, the lowest level in 14 months and well below the consensus forecast offered by Bloomberg of 495,000.

The 4-week moving average continues to cooperate, dropping 16,500 to 496,500, the first dip below 500,000 in over a year. And continuing claims slid 190,000 to 5.42 million. However, the expiration of standard benefits and not job creation is probably the main reason for the downward trend.

Weekly jobless claims can be volatile and seasonal adjustments do not always accurately capture recurring changes in the job market.  But in searching through the data, I did not find any comments that Wednesday’s early report (weekly claims are typically reported every Thursday)  influenced the latest drop.

The timeliness of jobless claims makes this one of my favorite barometers of economic activity, and the downward trend in layoffs implies that companies are slowly detecting an improvement in the economic outlook.

In addition, today’s steep decline provides hope that we may soon see diminishing job losses and eventual gains in employment.

Too soon to give the all clear sign

Still, any enthusiasm should be tempered with the second-straight monthly decline in consumer sentiment, as measured by the University of Michigan’s survey on confidence.  This doesn’t bode well heading into the all-important Christmas shopping season.

And an unexpected drop in orders for durable goods, which was also released this morning, suggests a modest recovery at best.