Axios Macro

Weekly jobless claims are a thing again: The labor market remains strong, but economists are bracing for a shift — and looking for timely clues about whether a slowdown is taking hold.

Why it matters: No indicator is perfect. Yet economists are warning this one is riddled with caveats.

• "When we're waiting for an inflection point, this report comes back into the spotlight. But it's difficult to interpret, so it makes it very hard to spot a turning point," Indeed economist AnnElizabeth Konkel tells Axios.

Catch up quick: After steadily declining after the pandemic shock, weekly unemployment filings have been on the upswing.

• There were 250,000 jobless claims last week, roughly the same as the prior week, the Labor Department said. The pre-pandemic weekly average in 2019 was about 218,000.
• To smooth out volatility, economists prefer the four-week average of new claims (charted above).

The big picture: The data has pitfalls (more below), but it does signal at least two things.

1. There's a clear directional trend: Layoffs are picking up pace, which anecdotes from U.S. companies confirm. Still, we know from other reports that layoffs remain at historically low levels. New claims, too, aren't consistent with a recession.

2. Those laid-off workers have plenty of prospects for new gigs. The report is a proxy for layoffs, but says little about hiring. So economists are reading between the lines.

• Continuing claims — which tallies people who continue to file after first applying for unemployment benefits — are rising more slowly than initial claims.
• This speaks to labor demand strength (as evident in the monthly payrolls release). "Clearly, people are getting off unemployment benefits quickly because they can find jobs very easily," Tuan Nguyen, an economist at consulting firm RSM, tells Axios.

How it works: The assumption is if someone gets laid off, they will ultimately file for unemployment. As jobless claims rise, it's a sign more people have lost work; when they fall, fewer people are out of a job.

• At the onset of the pandemic, it was the timeliest data available on the labor market deterioration as the economy all but came to a halt. Then, there were warnings the report was actually understated, as state unemployment offices struggled to process the deluge of filings.
• As the labor market recovered, more warnings came the report may be sending mixed signals, particularly as the Labor Department reconfigured seasonal adjustments.

Now that warning is back. Recently, Goldman Sachs argued potentially fraudulent claims are inflated figures in at least one state, Connecticut.

• Moreover, the bank says the recent jump in jobless claims "appears to be a statistical illusion" from seasonal adjustment factors, influenced by huge changes during the pandemic.

The bottom line: Don't expect economists to completely toss the report out. They will keep weighing the data against other indicators that continue to point to a healthy labor market.

• "There is the monthly jobs report, and there's everything else. And I would say jobless claims falls into the category of everything else," says Oxford Economics' John Canavan.

Earlier this summer, we wrote about the Fed's regional manufacturing surveys. Yes, those real-time indicators are quite volatile, but at the time, they were all pointing in a similar direction, with almost all signaling an outright contraction of factory activity. That doesn't appear to be the case right now.

• Earlier this week, the New York Fed's gauge of factory activity in the state plunged an astounding 42 points in August, putting it in deep contraction territory. Firms reported sharply lower shipments and new orders.
• This morning, a similar measure out of the Philadelphia Fed unexpectedly bounced into positive territory. It suggested a modest growth of output, though reports of new orders continued to drop.

The bottom line: Again, these surveys are volatile, but perhaps the conflicting signals suggest the manufacturing outlook isn't as dire as some thought. Helping that argument is the stronger-than-expected factory data out earlier this week.