Initial Weekly Unemployment Claims (4-Week Moving Average)

I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

Quick ‘n Easy

By tracking the number of people who are filing for unemployment benefits for the first time each week, we get a quick insight into the latest status of the economy’s health.  Fewer claims equals more jobs, which equals more income, which usually equals more consumer spending (70% of the economy!) that supports company profits, which in turn can lead to more hiring.

First, a nice summary about Initial Weekly Unemployment Claims and why they matter, from Econoday:

Jobless claims are an easy way to gauge the strength of the job market.  The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy.  Nearly every job comes with an income that gives a household spending power.  Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.

Here’s a chart of the four-week moving average for weekly jobless claims from Calculated Risk:

Courtesy: CalculatedRiskBlog.com

Trends and Projections

Below, I will discuss whether the indicator is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.

Trend Analysis

Quick ‘n Easy

From the (week ending) Nov 26 – Dec 31, the 4-week moving average of initial jobless claims was in a confirmed downtrend in claims (good) of about 4,914 per week, which is even better than the previous confirmed trend from Oct 22 – Nov 19 of about 3,000 per week.  However, the latest two readings (week ending Jan 7 and 14, 2012) were higher than trend, so it is possible this trend will be broken next week.

Source Data: U.S. Department of Labor

Current Trend: (Week ending) Nov 26 – Dec 31.  During this time, there was a confirmed downtrend, with a 100% chance that initial weekly claims were falling by about 4,914 per week.  The slope of this trend is even steeper than the previous confirmed trend, which is great.  Unfortunately, the latest two readings came in too high to be considered part of the current trend.  They weren’t off by enough to break the trend though, which surprised me.  It is possible next week’s number will simply establish a new downward trend that is parallel to the one that started on Nov 26 but adjusted upward a few notches.

Last Confirmed Trend: (Week ending) Oct 22 – Nov 19.  During that time, there was a confirmed downtrend, with a 99.9% chance that initial weekly claims were falling by about 3,000 per week.  The trend broke due to three off-trend readings that were too high.

Projected Next Data Point

The next report is for the week ending Jan 21, 2012.  If the most recent trend is still intact (ignoring the latest two readings), the actual week ending Jan 21 reading would need to be 302,900 so that the 4-wk moving average would be at the expected level of 358,000.  This is almost certain not to happen, likely breaking the trend (due to three off trend data points).  However, it’s possible there will simply be a new downward trend, parallel to the old one but shifted upward a bit.

Easy Take

I expected this week’s number to break the trend, but it came in way below the expected number, which is great news.  However, it was still “off trend” – just not enough to officially break the trend from Nov 26.  I do expect the trend to be broken next week because there is simply too much ground to make up in one week.  However, it may simply be that a new downward trend begins again, just shifted upward a bit from the previous (red line) above.

It’s also possible the trend may flatten for a while here.  If you believe what the leading indicators tend to say, you would predict that jobless claims will start trending back up again in the near future.  I will feel more comfortable assessing the situation after next week’s report, just to make sure we’ve gotten rid of all the holiday “noise” around claims processing.

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