One major US economic indicator continues to impress

Initial jobless claims continue to barrel lower every week.

The latest data on Thursday showed that claims totaled 255,000 last week (270,000 expected).

This report also showed the four-week average, which evens out the weekly volatility of the series, fell to 265,000, the lowest level since November 1973.

Also, last week’s weekly first-time claims for unemployment insurance (or jobless claims) were revised lower by 1,000 to 262,000.

And as BMO Capital’s Brian Belski noted, and the chart above shows, claims have spiked before each of the five last recessions.

As concerns about an imminent recession build in some quarters, the initial jobless claims data are at least one indicator that tells us the complete opposite.

However, where the labour market specifically is concerned, claims only tell us part of the story, according to Renaissance Macro’s Neil Dutta.

“We would much rather watch jobless claims fall than rise,” Dutta wrote to clients on Thursday. “That being said, initial claims overstates the strength in the labour market. The employment situation is strong and slack is receding but we are not in uber-boom mode.”

This is likely why economists pointed out a disconnect between the recent drop in claims and the weak jobs reports of August and September.

On the flip side, the low level of claims is evidence of a tightening labour market. Pantheon Macroeconomics’ Ian Shepherdson wrote Thursday that companies cannot find people to hire, and so they aren’t letting go people who are already employed.

“It’s now very hard to avoid the conclusion that the trend is falling again, even though payroll growth has slowed,” Shepherdson wrote to clients.

“The circle can be squared, though, if you believe that a key reason for the slowdown in payrolls — outside the small manufacturing sector — is that firms cannot find the qualified people they need.”

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