One Leading Economic Indicator That’s Flashing a Green Light - January 28, 2019

Last year’s stock market selloff was blamed on several factors. Among the concerns – fears the Federal Reserve’s desire to gradually raise interest rates might harm the economy, and the uncertain path U.S./China trade relations might take.

Put another way, there was apprehension U.S. economic activity might slow too quickly, hampering profit growth.

The latest estimate for fourth quarter GDP is 2.8%, according the Atlanta Fed’s GDPNow model. It is a model that incorporates the latest economic reports and computes an estimate. But the partial government shutdown has delayed some reports, and the current estimate lacks important data.

Nonetheless, one leading economic indicator suggests economic growth is continuing at a respectable pace. On Thursday, the Dept. of Labor (DOL) reported that weekly first-time claims for unemployment insurance fell 13,000 to 199,000 in the week ended January 19.

It breaches the cycle’s prior low of 202,000, reached in mid-September, and places first-time claims at the lowest level since 1969. No, that’s not a typo – it is 1969.

Claims for federal workers have risen since the beginning of the shutdown, but they are counted separately and are not in the graphic below. Weekly data also suggest the government shutdown has yet to affect private companies and government contractors.


Weekly claims are not simply a gauge that measures the labor market. Claims can also be viewed as a “hard” measure of business confidence.

No matter how strong the economy may be, there will always be layoffs. However, today’s low level of claims suggests that businesses and the economy are growing, and firms are reluctant to lose needed workers. When business activity slows, we’d expect layoffs to rise. Note that claims have historically bottomed prior to the onset of a recession (red arrows).

It’s not a perfect indicator. Weekly numbers can be volatile, and seasonal adjustments made by the DOL may sometimes fail to account for various factors. Due to Monday’s MLK Day holiday, the most recent claims data include estimates for six states, including California. Therefore, we could see revisions next week.

Still, the low level of jobless claims is suggesting economic worries in December may have been overblown.