A larger-than-expected jump in initial jobless claims offers just a glimpse of the deteriorating conditions amid the coronavirus pandemic, which are expected to continue, but the seasonally adjusted numbers don't show how bad the picture really is, according to economists.
Initial jobless claims climbed to 853,000 on a seasonally adjusted annual basis in the week ended Dec. 5 from a revised 716,000 a week earlier, the Labor Department reported Thursday.
The Nov. 28 read was first reported as 712,000. Economists polled by IFR Markets expected an increase to 725,000 claims in the week.
Continued claims increased to 5.757 million in the week ended Nov. 28 from an upwardly revised 5.527 million a week earlier, initially reported as 5.520 million.
The four-week moving average grew to 776,000 in the week ended Dec. 5 from 740,500 a week earlier.
“While I don’t think we will see as high numbers as we did back at the beginning of the pandemic, it will probably get close to or above the 1 million mark,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. “The momentum we had come to a quick halt, and things will continue to soften, as it will be difficult for the economy to continue to improve without further stimulus and an available vaccine.”
Tom Porcelli, managing director and chief U.S. economist at RBC Capital Markets, said, “It’s unfortunate but we shouldn't be surprised, as there is a symbiotic relationship, with restrictions from scaling back or shutting down business’ and jobless claims rising.”
While times are "difficult" and will remain so into next year, he said, "It will be key to see how state and local governments react and respond.”
Porcelli also noted before seasonal adjustment, the number of claims was way higher. “{Not seasonally adjusted] came in at 947,504 this week from 718,500 the prior week — which begs the question what is seasonally about a pandemic?”
CPI
The consumer price index rose 0.2% in November on a seasonally adjusted basis, after coming in flat in October, while the core rate also climbed 0.2%, after being unchanged a month earlier, the Labor Department said Thursday.
Economists polled by IFR Markets expected both the headline and core to grow 0.1%.
Year-over-year, CPI is up 1.2%, compared to a 1.4% rise in the prior month, topping economists' projections of a 1.1% increase.
Core CPI year-over-year is up 1.6%, the same as it was a month earlier, while economists anticipated an increase of 1.5%.
“Firmness was widespread and we got some breadth to inflation gains,” Porcelli said. “My base case is for a 5% gross domestic product growth in 2021 and if that is the case, that would be core inflation at 2.5% by mid-year.”
Core services inflation — a measure he likes to track — was up 0.24%. “CSI is 60% the weight of inflation and gives you a sense for what domestic oriented inflation dynamics are doing,” he said.
Flanagan said, “The big question is, will there be the same kind of lockdowns and restrictions as last time? Right now, fiscal policy is playing catch up, but hopefully the new round of stimulus will help with that.”
Airfare and hotel services produced some of the biggest monthly gains in CPI. “Going forward, you will see a pickup in inflation, and I would not be overly surprised if we reach 2% well before the market thinks we will."
