Thoughts on Initial Unemployment Claims

Initial claims appear to have disappointed slightly this morning, as the headline (seasonally adjusted) number spiked to a level not seen since early April. However, the non-adjusted number fell below 400,000 for the first time since early May. The slight bump to the four week moving average was not large enough to be worried about at this point. Of course, the ultimate takeaway is that layoffs are still not falling quickly enough to put a significant dent in the unemployment rate.

With that in mind, we updated some of our claims graphics.

As in late May, running a crude spreadsheet model of the four week moving average of seasonally adjusted initital claims shows that selection of the polynomial has a notable effect on the projected trend. However, at this point, the divergence looks far more benign (an outlook that is supported by some key credit market indicators):

If we smooth out a long term moving average of initial claims, we get a clearer picture of underlying trends. Here we can see that initial unemployment trended persistently higher during most of the 1970s and early 80s, then fell steadily from the mid-1980s to the end of the 1990s except for the early 90s recession. The trend has been decidedly negative since 2008. Whether we’ve broken out of the “great moderation” of the past 20+ years and entered a period more like the 1970s remains to be seen:

One aspect of initial claims where there has been a clear and definitive break with the past is in the ratio of continuing unemployment claims to claims filed by the newly unemployed:

Through the end of the last century, the median number of continuing claimants has been just under seven.  Since the turn of this century, it has been nearly eight, and at the moment it is just shy of eleven. That means that for every individual filing a new claim for unemployment benefits, there are more than ten others filing ongoing claims. On that count, the current period looks notably worse than the 1970s. However, it does require some additional analysis — specifically, has extending the duration of benefits skewed the number of continuing claims upward?

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