No signs of labor market deterioration

Tomorrow's employment report will likely be unimpressive, with gains coming in near the lower end of the range (100-250K) of the past three years—the market is expecting a gain of 150K for private sector jobs, while the ADP estimate points to 140K, and both seem reasonable. But that won't mean that the employment picture is deteriorating. Real deterioration would more likely show up in a rising level of unemployment claims, but there is still no sign of that; claims continue to trend lower.

The first of the above two charts shows the 4-week moving average of unemployment claims. It's approaching relatively low levels. We aren't likely to see claims moving much lower from here; 300K per week is probably what we should expect to see on an ongoing basis if everything were normal (i.e., that would represent normal job turnover). The second chart shows the weekly level of claims and the 52-week moving average of weekly claims. As this demonstrates, claims are still in a declining trend, but the rate of decline is falling. 

Congress has still not reauthorized the emergency unemployment claims program that started in mid-2008 and ended early this year. As a result, there are 37% fewer people receiving unemployment insurance benefits today than there were a year ago (almost 2 million fewer). That's good news, since it means that within the ranks of the unemployed there has been a significant increase on the margin in the incentives to find and accept a job. This makes the labor market more dynamic and more healthy, in my view.