Expect Structurally High Unemployment to Continue; Risk of Recessionary Lapse

by: Edward Harrison

For the latest week’s data for jobless claims, all you need to know is that the 4-week average barely budged and remains just above the 530,000 mark, consistent with a loss of 200,000 jobs. Clearly employment continues to lag at this point in the business cycle.

The Good

  • Unadjusted initial claims. Actual initial claims came in at 460,449, putting them back below 500,000 after last week’s 509,562 broke a string of ten weeks below 500K.
  • Unadjusted initial claims. This number is now at 4.89 million, the lowest since last December.
  • Adjusted initial claims. The 4-week moving average SA initial claims is still falling. Now at just over 532K, it is at the lowest since Jan 17th.
  • Adjusted continuing claims. The same goes for continuing claims, where the 4-week average SA number fell to 6.03 million, the lowest since April 18th.
  • Change in continuing claims. 6-month and year-on-year comparisons for both NSA and SA continuing claims have been falling since May. The six-month comparisons are poised to go negative soon.

The Bad

  • Change in unadjusted initial claims. The year-on-year number is up for the second week in a row, after falling every week but two since May.
  • Change in adjusted initial claims. Here again, the year-on-year comparisons are going the wrong way. They are up very modestly (53,250 vs. 52,500) after falling consistently since March.

Basically, the numbers are coming down but not fast enough. The 2nd derivative i.e. the change in claims is going the wrong way – and this is in comparison to a period when claims were leaping up post-Lehman. I see this data point as an ominous sign.

That said, at the same time in the last recession (28 weeks after the average initial claims had peaked) in May of 2002, jobless claims had risen in March and April and were in the process of flatlining at around 400- 425,000. This lasted until September 2003, two years after jobless claims had peaked.

Is this what we should expect this go round? Yes. And that means the economy will have structurally high unemployment levels, putting it at risk of a recessionary lapse.