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) Jan 7 – Feb 25, the 4-week moving average of initial jobless claims was in a confirmed downtrend in claims (good) of about 4,122 per week, which is nearly as good as the previous confirmed trend from Nov 26 – Dec 31 of about 4,914 per week.

Source Data: U.S. Department of Labor

Current Trend: (Week ending) Jan 7 – Feb 25, 2012.  During this time, there was a confirmed downtrend, with a virtually 100% chance that initial weekly claims were falling by about 4,122 per week.  This improving trend is nearly as steep (i.e., nearly as good) as the previous one, although there was a step up between Dec 31 to Jan 7.  Otherwise, we’ve had a trend in the right direction for about three months now.

Last Confirmed Trend: (Week ending) Nov 26 – Dec 31, 2011.  During this time, there was a confirmed downtrend, with a 100% chance that initial weekly claims were falling by about 4,914 per week.

Projected Next Data Point

The next report is for the week ending Mar 3, 2012.  If the most recent trend is still intact, the actual week ending Mar 3 reading would need to be 352,680 so that the 4-wk moving average would be at the expected level of 351,920.  This is right in line with the latest three reports, so it is nearly impossible to imagine a scenario under which the trend would be broken next week.

Easy Take

Once again, we are definitely still headed in the right direction on jobless claims.  We’d love to see that 4-week moving average drift downward below the 350,000 level eventually (latest is 354,000).  The way the reports have been trending, we would hit this level in just two weeks!  But keep in mind that the last time there was even a single week’s reading below 350,000 it was in March 2008.  We’d have to see several reports below that before the 4-week moving average would have a shot at getting there.

Unfortunately, many people believe that the economy will slow down a bit later this year, which means that we would see a deterioration in the labor market in the months thereafter.  Nevertheless, the data we have now is showing a clear improvement in the labor market, with fewer people getting laid off, more job openings and jobs created.  The numbers we’re seeing right now bode well for a strong “nonfarm payrolls” number for February (report coming next week).

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