Jobless Claims Down to 514,000; Two Things to Look for Now

For the latest week, U.S. jobless claims hit 514,000, the lowest level since early January. This brings the widely-tracked four-week average down to 531,500, also a 9-month low. In addition, continuing claims fell below 6 million for the first time since March. All of these seasonally-adjusted data points suggest that the unemployment situation is slowly improving. My baseline scenario to date sees this improvement continuing to where initial jobless claims fall back into the mid-400s by year end so that non-farm payrolls show job gains late this quarter or early next quarter.

However, this past week saw two negative data points pop into the picture. When looking at the non-seasonally adjusted (NSA) data, the number of initial claims spiked up above 500,000 for the first time in 11 weeks. This is the normal seasonal pattern and is to be expected; however, last week’s spike caused comparisons to last year in (4-week average NSA) initial claims to tick up (42K more initial claims than last year versus 36K more the week before). Translation: initial claims are not coming down fast enough to rule out a double dip recession.

I see this period through early December as critical for the economy and jobless claims will be a key signpost. Right now we are in a weak recovery: jobless claims are coming down, retail sales (ex-autos) have stabilized, inventory levels are incredibly low. All of this points to an economy poised for a rebound. However, employment indicators are still lagging. With the holiday season upon us soon, the moment of truth will arrive. In the next couple of months, two things will happen.

• Seasonal adjustments on jobless claims data will spike up through January. That means there will be more layoffs due to seasonal patterns. Because jobless claims are in cyclical decline, this sets up situation in which the adjustments could really cause a surprise downswing in claims. The week ending December 5th when the adjustment factor hits 140.2 is the week to watch.
• Holiday retail sales will be critical to post-Holiday layoffs. Some retailers see the holiday season as a make-or-break. Last year, there were lots of stories about retailers waiting until after the holiday season to shut down stores and end leases. Is this what we should expect if holiday sales are poor? If so, there will be a concomitant rise in jobless claims which would put the recovery in jeopardy.

Overall, as the jobless claims series is published weekly, it is the best real-time gauge of how the recovery is progressing and it bears watching closely.

Comments

[Dave Wrixon:]

1. The Truth
2. Safety (And that means outside the dollar, Stupid!)

Oct 15 11:34 AM

[CautiousInv...:]

Edward, during the past two recessions and the ensuing recoveries initial claims fell to the 400k to 470k range within twelve weeks of the trough. Confident that we are well past the trough, these stubbornly high claims substantiate the nature of this recovery and the likelihood employment will remain weak for the foreseeable future.

Oct 15 11:49 AM

[Edward Harr...:]

I come to similar conclusions. In August, I posted similar statistics to the ones you site:

www.creditwritedowns.c...

That doesn't mean past is prologue. We still have to worry about the potential for a reversal.


On Oct 15 11:49 AM CautiousInvestor wrote:

> Edward, during the past two recessions and the ensuing recoveries
> initial claims fell to the 400k to 470k range within twelve weeks
> of the trough. Confident that we are well past the trough, these
> stubbornly high claims substantiate the nature of this recovery and
> the likelihood employment will remain weak for the foreseeable future.

Oct 15 02:02 PM

[Dialectical...:]

Can you explain why we would see job gains if initial claims fall to 400k? I am sure you have this worked out, but I just can't see it. Continuing claims would have to fall, of course (and not just because they ran out of unemployment). What are you assuming would be the level of weekly job creation if we get job gains at 400k new claims? To my mind (and I could be way off base), we won't get a lot of new jobs being added in such a slow economy, so 400k new claims still sounds like a degrading employment picture to me, albeit at a slower pace.

Oct 15 07:33 PM

[Edward Harr...:]

Basically, there is so-called frictional unemployment meaning there is always hiring and firing in an economy of 300 million. The net hiring over firing gives us job gains. Most economists put a 400-450k weekly level as the level where enough hirings are taking place to show net job gains. That would mean a weekly loss of 400-450K jobs but also 400-450K in new hires as well.


On Oct 15 07:33 PM Dialectical Materialist wrote:

> Can you explain why we would see job gains if initial claims fall
> to 400k? I am sure you have this worked out, but I just can't see
> it. Continuing claims would have to fall, of course (and not just
> because they ran out of unemployment). What are you assuming would
> be the level of weekly job creation if we get job gains at 400k new
> claims? To my mind (and I could be way off base), we won't get a
> lot of new jobs being added in such a slow economy, so 400k new claims
> still sounds like a degrading employment picture to me, albeit at
> a slower pace.

Oct 15 11:25 PM

[bluesky123:]

I'll tell you what I'm looking for. I'm looking for Democrats and Republicans to table their first clever, creative, visionary job growth plans for the next 10 years. The year is over and no plan from anybody. What is this, the Simpsons?

I expect both parties to table their plans by Thanksgiving. Politics are out the window. I'll judge each party based on their plans. Nothing else.

Oct 16 03:03 AM

[the Gnome:]

I doubt that any continuing "new" jobless claims of over a half million each period can be seen positively. Eventually it will have to drop though--once there are no more people employed!

Oct 16 12:08 PM

[Lilguy:]

Ed--

Please note that 2 MILLION more people are now receiving unemployment compensation than were doing so a year ago, and that doesn't count those who no longer qualify for these minimal, but critical, payments.

As long as we are adding more people to the roles of unemployed--compensated or not--our economy will not improve in any meaningful way.

Oct 16 02:24 PM