Following three consecutive weekly declines, the Labor Department reported that initial jobless claims rebounded last week, rising to a level of 554,000 from 524,000 for the week ending July 11th. Even with last week’s increase, initial claims were down 12 percent compared to a month earlier. Is this a sign that the labor market is starting to stabilize? Unfortunately, no.
Initial claims have been depressed over the last few weeks due to seasonal adjustments that expected temporary layoffs in the motor vehicle sector this time of the year. However, since shutdowns in auto production already occurred earlier in the year, this expected-component in initial claims did not take place, resulting in a lower number of initial claims reported by the Labor Department over the past few weeks.
Next week’s report will be the first set since late June where the motor vehicle adjustment will not be a significant issue, so it should be a good gauge of the direction of the labor market. While an increase in initial claims is expected, extent of the gain will be an important barometer of the state of the economy.