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Unemployment Claims: How To Interpret

Upon viewing weekly unemployment claims numbers, what can really be garnished from it? The media is not helpful in this regard as it's automatically assumed that lower claims is good and higher claims is bad. The media constantly says that claims going lower is GOOD, but is it? The fact is, it is BAD! This may not seem obvious at first but shortly this should become quite clear.

I am not expecting you to all know the calculus behind such numbers, so I will try to state in simple terms what is going on. As the number of those employed cannot go down much more and still be able to meet the needs of all goods and services, there will necessarily be a decrease in the number of jobless claims. This process is not linear but sigmoidal (asymptotical on opposing ends), being faster to begin with then slower later. This does not mean we are in a recovery. It means we are nearing the bottom and says nothing of a recovery. You need to view the monthly job growth data to determine if there is a recovery.

Graphical Representation Of Unemployment Claims

Just think, if the number of claims were close to ZERO, what really would that tell you? Not a whole lot on its own! It could mean there is hardly anyone that can be let go to have any substantial claims possible or that there is a cultural situation whereby employers are reluctant to get rid of anyone (as perhaps there was no Federal Reserve System to instigate large economic swings and the executives planned their hiring with greater care).

The current unemployment claims data points to us being at stage B being the number of jobless claims is decreasing, going towards a number that would reflect the CULTURAL norm of the flux or equilibrium of employment (there is a job turnover no matter what the state of the economy is, and this is due greatly to cultural effects). When there is a pick-up in employment, then we would migrate from point B to B' as depicted in the graph.

So when the claims are higher, in the first stage of a down-turn, you are suppose to think this is WORSE than when at the bottom where there are less claims made, and yet the number of employed is LESS? I trust the readers can see this clearly now, and once you understand this, it would be helpful to share this with knowledge with others to combat the erroneous interpretation that the media is thrusting onto the public. You see, the opposite of what the media tells you is the truth (in this instance and in many others).

Once the number of jobless claims gets to roughly to some constant number, it would basically tell you that you are at that cultural point of job exchange and this would signify the bottom. We are approaching that now, but still it does not mean we are up, up, and away from here as far as job growth goes, as once at the bottom, the bottom can persist. And especially with the United States, being a first world country, the impetus to outsource labor will continue until which the rest of the world equilibrates with it. This points to a structural problem that is not being addressed by your leaders so you should not expect any sort of recovery like was experienced in the past. Just hope there will be a recovery, or you could help make it happen by pressuring your leaders to compress the wealth divide that would bring down the cost of living and then the legal workweek could be reduced, thus enabling a larger percentage of the population to be employed.

Higher claims may be good or bad, just like lower claims may be good or bad. Couple with the monthly jobs report and you'll pretty much know which of the two it is. When there is greater saturation in the workforce, claims can go higher and still, it doesn't necessary mean it is bad - it all depends on the employment situation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.