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Could Weekly Jobless Report Hint at Weakness in Labor Market?

Thursday’s weekly jobless claims report sent mixed signals, with some seeing sustained strength on the U.S. labor front and others wondering if the latest data could hint at weakness on the employment front.

The labor market is viewed as a good indicator of the strength of the U.S. economy, and for now, most economists don’t expect a recession to take hold in 2020. When consumers are employed and their wages increase, their high confidence levels tend to drive spending at retail. But that could change, should there be an indication that the labor front is slowing more rapidly than anticipated.

The report Thursday from the Labor Department examines initial claims for state unemployment benefits. The latest numbers for the week ended Dec. 14, indicate that initial claims fell by 18,000 to a seasonally adjusted 234,000, better than the previous week and still lower than the initial claims of 255,295 in the same comparable week in 2018.

Some economists read that data report as good because the numbers dropped from more than a two-year high in the prior week, when the jump of 49,000 boosted claims to 252,000. But that increase also increased the claims rate to its highest reading since September 2017.

And more important, the latest report was still higher than some economists had projected. Many had expected the current week’s initial claims to drop to 225,000.

The four-week moving average for weekly unemployment insurance claims increased by 1,500 to 225,000, from the previous week’s unrevised average, according to the Department of Labor.

Samuel Coffin, an economist at UBS, falls into the camp that wonders if the labor market could be weakening even faster than last year.

“The rise in jobless claims to 234,000 in the last week hints at faster deterioration in the labor market. We expected the surge in the week of Dec. 7, but today’s data for Dec. 14 were higher than we anticipated,” Coffin said. “If confidence were driving recent layoffs, the widely expected [phase one] trade agreement should be having a positive effect on claims.”

This “deterioration,” he added, is “consistent with our forecast for continued damage from tariffs.”

The economist sees the Dec. 7 spike as a function of negative seasonal factors, noting that the latest elevated levels also reflect a rise in the path of non-seasonally adjusted claims, compared with last year.

“We are maintaining our forecast for higher seasonally adjusted claims through the end of the year, but after today’s data, we see risks of a larger rise signaling even greater weakening in the labor market,” Coffin said.

A rise in claims already had been signaling a weakening labor market, Coffin added. Initial claims rose through the end of the 2018 as layoffs in the manufacturing sector surged, and Coffin said UBS is expecting the same pace of deterioration this year, with seasonal factors making the rise in layoffs appear even worse.

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