Unemployment claims hit a four-year low last week, continuing a trend that could benefit the president in an election year. And economists say there’s little Washington can do to screw it up, so long as Washington keeps doing nothing.
“Our general view is that not much meaningful will happen in Congress until after the election,” said Jeff Greenberg, an economist at Nomura Securities. “We think it’s going to be a lull, not positive or negative from the policy side.”
The only major concern, economists said, had been the extension of the payroll tax cut and unemployment insurance benefits, but a payroll deal was ironed out last night.
“If they, for some reason, didn’t extend the payroll tax holiday, that would be a threat to our forecast,” said Brett Ryan, an economist at Deutsche Bank. The extension of the payroll tax cut would put roughly $115 billion in consumers’ pockets, he said.
And the looming budget fight likely won’t have a big impact on the broader economic picture, either, Ryan said. That's largely because the budget battle is expected to be postponed until after November.
“State and local spending is 50 percent greater than federal government spending,” he said. The layoff rate has leveled off among state and local governments, which have made big cuts over the last two years and are seeing an uptick in tax receipts, Ryan noted.
While weekly claims can be volatile, last week's numbers show a continuing positive trend -- in line with other data suggesting a more consistent recovery. Last week’s seasonally adjusted initial jobless claims fell to 348,000—surprising economists polled by both Bloomberg and Reuters, who expected an increase to 365,000. The level was its lowest since March 2008.
Still, questions remain about other aspects of the labor market.
"It's just hard to read too much into this indicator at this point in time given all of the other nuances of the labor market," Nomura’s Greenberg said.
"We expect the types of claims numbers we’re getting, but what would be more exciting is continued strong payroll growth," he said, noting that the weekly snapshot doesn't capture the plight of the long-term unemployed.