June's Lean Jobless Readings

What are the chances that U.S. jobs growth will continue on a solid track? Pretty good, based on the June 22 jobless claims data

To be sure, claims increased by 11,000 in the week of June 17—which happens to coincide with the period in which the Bureau of Labor Statistics collects data for the month's employment report—to 308,000, from a revised 297,000 level the week before (from 295,000). But the weekly figure remains low when viewed against recent trends, and still augurs a solid employment report for the entire month.

When viewed over a longer time horizon, the initial and continuing claims figures from the report have trended lower over the past two years, which has generally been consistent with stronger payroll growth and a downtrend in the unemployment rate.

Indeed, the data for June are proving remarkably lean. The average claims reading for the month thus far is a very low 303,000, which follows a 330,000 May average that would have been a 318,000 average if not for the distortion created by the Puerto Rican government shutdown. Before that, we saw averages of 314,000 in April, 308,000 in March, 290,000 in February, and the remarkably low 284,000 in January.

PARTIAL BOUNCE-BACK.

  The monthly figures in 2006 are tracking well below the 322,000 average for 2005, and are at or below the 318,000 readings seen in the leaner months of 2005, such as December.

Initial claims data were quite volatile through May, with the Puerto Rico effect and holiday distortions having a big impact. We now have three weeks of claims data for June that are past the May distortions, and all three readings are notably lean. Claims have only partially bounced from the low point of 272,000 hit in January, and the first-quarter average of 288,000.

The three low claims readings in June and a lean figure for the survey week have prompted an upward revision in our June nonfarm payroll forecast to a gain of 175,000, with a flat factory-jobs reading, and an unchanged 4.6% unemployment rate. We still see payrolls fluctuating around the 157,000 average monthly gain of the last year, but a bounce is now likely in June following the sub-par 75,000 gain for May.

Other labor-market signals for June may be falling into place as well. The first two June factory-sentiment reports have revealed strong readings, which imply upside risk to the employment components of the Chicago PMI and ISM factory and service reports later this month.

And the weekly consumer confidence figures are posting a notable bounce, alongside the available monthly confidence numbers for June, despite falling stock prices, still-high gasoline prices, and fears of rising interest rates. This might imply that a still-tight labor market is helping to drive the positive responses to these surveys—and that U.S. job growth remains on a steady track.