Most believe there is something wrong with jobs growth - and the current jobs growth is anemic compared to the past. While it is true that jobs growth is not good today, it is not much worse than most of the growth in the 21st century.
- The monthly non-farm private payroll data is very noisy so it is difficult to get a clear perspective of growth;
- The highest twelve month rolling average in the 21st century of monthly non-farm private jobs gains was in early 2006 when the employment gains averaged 225,000 per month.
- The highest twelve month rolling average in the 1990′s of monthly non-farm private jobs gains was in early 1995 when the employment gains averaged 305,000 per month.
- The highest twelve month rolling average since the Great Recession of monthly non-farm private jobs gains was in January 2012 when the employment gains averaged 189,000 per month. Currently the average is 155,000.
Many keep their eyes on the weekly initial unemployment claims to get a feel of how the employment situation is shaping up. The graph below plots non-farm private employment (red line, right axis) against weekly initial unemployment claims (blue line, left axis).
Even though the data in the above graph is seasonally adjusted, the variation from month-to-month (noise) is significant. The data in the above graph has been replotted removing the noise by using a twelve month rolling average.
click to enlarge image
The grey line added is at 100,000 per month non-farm private jobs growth. Please note that except for the Great Recession recovery - jobs growth started returning to normal once weekly initial unemployment claims fell below 400,000 per week. The Great Recession employment recovery started when initial weekly unemployment claims fell to only 460,000.
My opinion and observations of using of weekly initial unemployment claims to forecast employment:
- the average weekly claims in recent history seldom falls below 300,000;
- once employment growth stabilizes following a recession, weekly initial unemployment claims are not that intuitive of employment growth;
- the current jobs growth is approximately at the levels seen during the better economic times of the 21st century - regardless of the ups and downs in the weekly initial unemployment claims.
Over a year ago John Lounsbury observed that the relationship between initial claims and jobs growth shows a different functional dependence depending on whether the trend in initial claims is rising or falling. He has not returned to that study for an update or elaboration on how his observation might be used.
There are all sorts of rhymes about history repeating, but it is clear that the historical relationship between initial claims and employment gains was different in the Great Recession recovery. Even ignoring the difference, at this point in the economic cycle historically:
- both initial claims and the monthly employment gains can fall at the same time.
- both initial claims and the monthly employment gains can rise at the same time.
- initial claims and the monthly employment gains can move in opposite directions.
In other words, watching the initial unemployment claims at this point is not intuitive in understanding the employment situation.
My normal weekly economic analysis and summary is on my Instablog.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.