Unemployment Claims: Don’t Panic, Don’t Write Home Either

Initial claims for unemployment insurance rose unexpectedly on a seasonally-adjusted basis last week. It’s a volatile series, but this continues a string of disappointing readings that have an increasing number of commentators wringing their hands over an imminent double-dip. Anything’s possible, but at the moment, claims data aren’t flashing imminent recession.   

What we’re seeing in the data is a typical mid-cycle flattening. Of course, it’s occurring at higher levels of un- and under-employment than anyone should be comfortable with, but until we see average initial claims move forcefully above current levels, it’s reasonable to assume that we’re not in a recession yet.   

As the first graph shows, there’s a fascinating sinus-like rythm to the non-adjusted series. And although it’s hard to take much away from the short-term data, what patterns there are don’t look too worrisome at the moment, despite the disappointing headline numbers:   

Source: BLS, Symmetry Capital

 Shorter-term averages recently crossed above longer-term ones, but similar occurrences in the past have not been a portent of imminent recession:   

Source: BLS, NBER, Symmetry Capital

Historic data indicates that a recession alarm isn’t sounded until smoothed, long-term averages start pushing forcefully higher. While they’ve flattened out of late, they’re still in negative territory:   

Source: BLS, Symmetry Capital

In past updates on claims, we’ve pointed out the staggering ratio of continuing claims to new ones since the most recent recession. This number has tailed off in the official data of late, which is a good sign. However, if it were possible to get an accurate count of the number of people who have exhausted their benefits but remain unemployed—the so-called 99′ers—this figure would be significantly higher, perhaps as high as fifteen to twenty continuing unemployed for every newly unemployed person.   

Source: BLS, Symmetry Capital

  The takeaways:   

• Claims and other employment data, while stubbornly disappointing, are not pointing to an imminent recession, though they do highlight the ongoing failures of policies and policymakers.
• Current trends are more indicative of a mid-cycle slowdown, which may justify some tactical or even strategic portfolio shifts, depending upon your investment assets and liabilities.
• Huge potential shocks remain in play: an emerging market slowdown, an intensifying eurozone crisis and/or eurozone recession, a potential showdown over U.S. government debt, and the austerity fetish gaining more traction in Congress. These factors will continue to demand savvy risk-management.

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