Another week, another near record low in initial jobless claims, which tumbled by 10,000 to 203K in the last week according to the BLS, below the consensus estimate of 213K, and down from 213K last week.
As further indication of the vibrancy of the job market, continuing claims fell by 3k to 1.707m, the lowest since mid-June.
The data, which comes before tomorrow’s main jobs report, show employment continued to improve in late August although Jobless-claims figures tend to be more volatile around holidays, such as the U.S. Labor Day. Some doubt about tomorrow’s strong number crept in after today’s ADP Private Payrolls disappointed, sliding from 217K to 163K, far below the 200K expected, and the lowest print since last October.
Even so, the figures add to signs businesses are keeping existing staff and adding new workers to help meet demand being boosted by tax cuts in the 10th year of the economic expansion.
Then again, there may be another potential explanation, and as Southbay Research notes, the collapse in initial claims may be tied to Trump’s immigration policy.
According to Southbay, taking the year-over-year change in Initial Jobless Claims (inverse) and comparing it to the GDP y/y growth, the current pattern broadly matches historical patterns. But nominal Initial Jobless Claims are at ~50 year lows. And that’s with a much larger working population.
Compare this business cycle with the one in the 1990s:
- Duration: ~10 years
- GDP: 1990s GDP much stronger
- Initial Jobless Claims Year 9 of recovery: 300K (2000) vs 210K (2018)
That is, the current cycle is strong but not as strong as the one in the 1990s. But Jobless Claims have collapsed even lower. Why?
- Not tied to duration: While Jobless Claims fall over time, both cycles have lasted roughly the same number of years
- Not tied to GDP: If GDP were the sole determinant, then the 1990s would have had even lower Claims.
Trump Economy & Immigration Policy
Sudden drop in welfare applications: From 2015-2017, Initial Claims were dropping at a steady nominal level of ~15K per year. Suddenly, in 2018, the pace has tripled: claims have fallen (-30K). What about 2018 is pushing down claims at the fastest rate in 4 years?
Tighter State Eligibility Requirements: Most entitlement programs are seeing a sharp drop this year. A key driver has been funding: the Federal government is shifting the cost burden to the States. In response, States have tightened eligibility; for example, many States are requiring food stamp applicants to show proof that the applicant is trying to find a job.
Last year, the Trump administration surfaced a plan to penalize legal immigrants who use welfare (public housing, food stamps, medicaid, etc). Under this plan, legal immigrants could have their status revoked. Fear of that plan is causing many immigrants to shy away from using these entitlements, and from filing Jobless Claims.
In addition, undocumented immigrants are finding themselves under pressure from ICE. Applying for Jobless Claims means visiting government offices. And that has risk.
KEY POINT: A strong and sustained period of economic growth is pushing down Jobless Claims. But the drop may not be as awesome as it seems.
ADP Employment Growth Slows To Weakest In 10 Months
Having beaten expectations in July (and printed notably higher than payrolls), ADP employment growth was expected to slow in August and it did – more than expected. ADP printed +163k against expectations of +200k (down from July’s revised +217k).
This is the weakest employment growth since Oct 2017…
Medium-sized firms dominated the job gains in August as did Service-providing roles…
“Although we saw a small slowdown in job growth the market remains incredibly dynamic,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.
“Midsized businesses continue to be the engine of growth, adding nearly 70 percent of all jobs this month, and remain resilient in the current economic climate.”
Mark Zandi, chief economist of Moody’s Analytics, said,
“The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions.”
Job growth is very broad – as measured by the BLS Diffusion index, employment breadth is the highest since 1998…
On average during President Trump’s tenure, ADP has – on average – had no bias in its reporting compared to BLS data, this is notably different from the systemic under-reporting that ADP did relative to BLS during Obama’s tenure…
Of course, with a 96.3% chance of a September rate-hike priced in, today’s ADP (and tomorrow’s payrolls) print likely have little to no impact on monetary policy (Dec odds for another hike is 67.4%).