Marc Pado Comments: The Good News In Today’s Jobless Claims Report

January 13, 2012,

Investors are less concerned about Europe’s debt crisis and more worried about the U.S. economy after initial jobless claims crept up to the 400,000 level and retail sales were weaker than economists had predicted.

Those concerns outweighed successful bond auctions by Italy and Spain, with U.S. stocks giving up early gains, falling into negative territory after the unexpected increase in jobless claims. Investors, it seems, are back to worrying about the U.S. economy.

As it turns out, there was actually a ray of sunshine in today’s jobless claims report, even if the rest of the report on the U.S. job market is uninspiring.

You’ve seen the headlines by now: Seasonally adjusted U.S. initial jobless claims rose by 24,000 to 399,000, above the average target of 375,000 according to a poll of economists by Bloomberg and the highest since initial claims topped 400,000 during the week of Nov. 26. That increase reversed a downtrend.

"The good news is that we’re still below 400,000. If you had expected a lot of layoffs, we’d be back up to 410,000 and 420,000," says Marc Pado, U.S. market strategist with Cantor Fitzgerald. "So bouncing back near 400,000 is a slight disappointment but not a real negative. The strength has been in manufacturing and construction in our monthly employment numbers, and those are areas where you don’t hire short-term. Those are ‘good’ jobs and won’t go away."

"These [numbers] can be highly volatile. This time of year is really difficult," says Diane Swonk, chief economist with Mesirow Financial in Chicago. "There are some signs of a fundamental healing in the labor environment. The hard part is the housing market, which is still suffering."

Swonk points out that, in the December nonfarm payrolls report released last week, courier and messenger jobs were much higher. "Those jobs went away with the retail hires that went away, so it’s transitory anyways," she says.

There are other points of the claims report that can be picked apart. Some media outlets are highlighting the non-seasonally adjusted (NSA) numbers, which paint a worse picture for the U.S. job market. NSA initial claims were up 102,314 to 642,381, the highest level since the first week of 2011.

The jump in NSA initial claims can easily be explained. Retailers and other employers that hired seasonal help have sent those temporary workers away now that the holiday season is over. And judging by today’s disappointing U.S. retail sales data for December, retailers that hired the temporary help certainly don’t need them on payroll.

But for all the concern that non-seasonally adjusted claims numbers were high during the first week of 2012, it is actually the lowest total investors have seen since 2008, as the chart below shows. During the first week of January 2008, non-seasonally adjusted claims were 548,000, and that was months before the financial crisis exploded and Lehman Brothers went bankrupt.

Paul Nolte, managing director with Dearborn Partners in Chicago, says he prefers the non-seasonally adjusted data because it’s "less fuzzy" than the seasonally adjusted numbers. He’s impressed that the trend overall is downward.

"If you look at the NSA, they’re up but nowhere near where they had been in past Januaries," Nolte says. "You have a series of lower highs. When you look at it on a year-over-year basis with no adjustments, you get a better picture. And that picture is improving. It is at least a little better than what many are expecting."

In other words, while it’s hard to stomach a rise in initial jobless claims, investors should be at least cheerful that the trends are pointing downward for now.

"Any time you get into the year-end and the first several weeks of the new year, there is more behind the number beyond the seasonal factors," Pado says. "You’re better off not taking these numbers too seriously and instead focus on the overall trend, which is still down. That’s the takeaway you should have out of these numbers in January."

So while there was some mild good news in an otherwise dark jobless claims number, Swonk still sounds the alarm for future miserable jobless claims numbers. "It’s disturbing that there wasn’t a lot of federal layoffs," she says. "They are looming out there and haven’t yet hit."