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Should we worry about the numbers out today showing that jobless claims have surged to 454,000 thousand, up from 403,000 the week previously? That’s a large jump, one of the biggest in recent memory. At the same time, there’s some new data showing that orders of big new equipment and machinery are down, which hints at future job losses.
The answer is no – it’s not time to worry, yet. Terrible weather throughout the Midwest and East Coast has skewed the figures, and the underlying data shows the labor market to be steady as she goes, on track to generate the 100-125,000 jobs a month that we need to at least hold the unemployment rate steady. Getting it down will require around 135,000 new jobs a month for quite some time, a questionable proposition – companies are still sitting on cash, and there’s even evidence that despite all the Immelt chatter about bringing jobs home, a number of American multinationals are actually speeding up outsourcing to emerging market nations post recession.
For a sense of where the economy is headed, the number to watch is next week’s unemployment report, out on Friday. That’s going to include the annual revision to historic jobs data. If that revision shows that even fewer jobs were created during the recovery than we thought (a distinct possibility), it could have important effects – not so much on the unemployment rate itself, which will probably be flat or only slightly up – but on the direction of economic policy in the U.S. As Paul Dales of Capital Economics notes, fewer jobs created will mean the Fed will probably push full steam ahead with “quantitative easing,” or the buying up of stocks and bonds—the very thing that inflation hawks worry could lead us down a 1970s style path of stagflation. Stay tuned.