Initial jobless claims dropped by 41,000 last week, printing at 410,000, after spiking significantly higher in the previous week to an upwardly revised 451,000. The four-week average moved higher, closing in on 400,000.
Hurricane Sandy has been largely blamed for the recent spike in jobless claims. Disruptions in commerce and temporary business closures in the affected region have been negative influences. Moreover, widespread power outages closing some essentially created a backlog of claims which many expect to decline as conditions improve in the areas struck by the storm. Against that backdrop, it’s unsurprising to see the sharp spike of nearly 44,000 in New York alone.
However, it may not just be Hurricane Sandy story, as that event alone seems unlikely to explain the surge in claims outside the affected region. Recent weakness in the manufacturing and construction sectors appears to now be filtering through to the workforce as well. This week, there was also a sharp increase in claims in California, far removed from the Northeast.
Even so, we have to be careful to not read too much into the data. At best, weekly jobless claims are a highly volatile data point that can fluctuate meaningfully from week-to-week. The degree of “noise” in the data right now leaves us particularly cautious about drawing any conclusions about the recently elevated results and what that might mean. The material decline from the prior week, even with the surge from New York in particular, suggests that claims may continue to descend back toward their pre-Sandy range in the weeks ahead. If the recently negative results outside the region continue though, claims could still settle in at a higher level.
The greatest near-term risk to the economy and labor market remains the looming fiscal cliff. Businesses have already begun trimming capital investment and spending plans for 2013 in anticipation of a fiscal drag. Whether that translates to a more pronounced slowdown in hiring remains to be seen. The sooner that an agreement is reached and greater clarity can be achieved, the better.
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