Jobless Claims (week of 1.19.13) Research Notes

by Jim Baird on January 24, 2013

Jobless claims fall to 5-year low, possibly skewed by seasonal adjustment factors

Initial jobless claims fell by 5,000 to 330,000 for the week ending January 19, 2013, just a week after reaching a five-year low.   While the data is superficially positive, economists are viewing the results through a cautious lens. 

The sharp decline in the past two weeks is likely skewed by misaligned seasonal adjustments rather than a marked uptick in economic activity.  It’s possible that the impact of these adjustments could wash out in the weeks ahead.  At a minimum, further clarity should be provided about the sustainability of these results.  The pace of job creation would need to accelerate considerably from the recent trend to support claims at this level over a sustained period.

Although the jobs picture has shown steady improvement in recent months, the recent tumble in sentiment paints a picture of a consumer that is still feeling the effects of a lackluster economy and slow progress on the jobs front.

The recent expiration of the payroll tax holiday is thinning out pocketbooks, as workers are now seeing the impact in the form of reduced take home pay.  As households absorb the impact, consumer confidence and spending are both likely to be pinched.  Better income growth in recent months could help to cushion the blow.

As both sides in Washington posture themselves for the debate on spending cuts and the debt ceiling, while Japan adds themselves to the list central banks pledging open-ended asset purchases to prop-up economic growth, we’re reminded of the significant degree of influence that rests in the hands of policymakers today.   

The economy still appears vulnerable, as economic growth is believed to have slowed late last year and is expected to muddle through the first quarter as consumers adjust to higher tax rates.  A combination of reduced personal savings and better income growth could be the difference makers should consumers resist the urge to trim spending.  Whatever path is collectively chosen will only become clear in the next few months, but may hold the key to the near-term outlook for the economy.

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