Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending March 9, 2013 – Easy Trends

In this article, I’ll do an “Easy Trends” analysis of the initial weekly unemployment claims data.  “Easy Trends” is 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.

NOTE: You may be reading an outdated analysis.  Please visit my latest unemployment claims trend analysis for more info.

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: (note: “jobless claims” are the same as unemployment claims)

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 showing the last ten years of the four-week moving average for weekly jobless claims from the Federal Reserve Bank of St. Louis: (may be one week old due to publishing lag from St. Louis Fed, usually if it’s still early Thursday morning)

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending Mar 2 2013 - FRED


Unemployment Claims Trends and Projections

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

Unemployment Claims Trend Analysis

Quick ‘n Easy

The 4-week moving average (a more reliable measure that smooths things out) decreased (by 2,750) with the latest report, so we still have a confirmed downward (good) trend of about 6,125 claims per week.  But the latest reading was too high to include in that trend – don’t worry though.  My calculations suggest it’s most likely that next week’s figure will be low enough to include in the falling trend and get us back on track.  Besides, it’s not so bad if we don’t move much lower considering we’re at a nice and healthy level now.

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending Mar 9 2013 - Trends

Source Data: U.S. Department of Labor

Current Trend: (Week ending) Feb 16 – Mar 2, 2013.  During that time, there was a confirmed downward (good) trend in which the four-week average of initial weekly unemployment claims was falling by about 6,125 per week.  But the latest reading was a bit too high to include in that downward trend.

Last Confirmed Trend: (Week ending) Jan 5 – Jan 19, 2013.  During that time, initial weekly unemployment claims were falling (good) by about 7,500 per week.

Projected Next Data Point

The next report is for the week ending March 16, 2013.   If the most recent trend (excluding off trend points) were extended perfectly, the actual week ending March 16 reading would be about 328,500 so that the 4-wk moving average would be at the expected level of about 337,500.  That’s only about 4,000 fewer claims than the latest reading, so it’s certainly possible.  More importantly, what would it need to be just to continue the confirmed falling trend?  Read on.

The way a 4-week moving average works, you throw out the oldest of the four single week readings and add the next one.  In other words, we will throw out the 366,000 single week reading for the week ending February 16 and add next week’s number.  If next week’s number is higher (lower) than that, the 4-week moving average will move higher (lower) – simple as that.  Based on my calculations, a weekly reading of about 351,000 or lower would continue the downward trend.  That means even a rise of 19,000 in claims would be low enough to include in the downward trend.  Therefore, next week’s report will most likely be included in the falling trend and negate the one reading that was too high this week, and because we are at a favorable level now, as long we’re not reversing the trend and moving up, it’s fine if things flatten out.

Easy Take

With the latest report on weekly jobless claims, we still have a confirmed downward (good) trend again, but the latest reading was too high to include in that trend.  My calculations show that it’s most likely we’ll get back on track next week with a reading that’s low enough to include in this falling trend.  Besides, considering we’re at a level below 350,000 right now, it’s fine if we don’t move much lower.  As I’d predicted last week, this week’s reading was too high to include in the current falling trend, but it wasn’t so high that it broke the trend.  Typically, for the four-week moving average, anything under 400,000 is probably indicative of a growing labor force.  We’re below that level and should stay there for a while, keeping any talk of current recession at bay.

The latest single week’s reading of jobless claims was 10,000 lower than last week’s revised reading – coming in at 332,000 this time.  The latest single reading was lower than the one that it replaced in the 4-week moving average, causing a drop in the 4-week moving average by 2,750.  The four-week moving average (346,750) is now the lowest it’s been since almost March 2008!  We currently have a confirmed falling (good) trend of about 6,125 claims per week, although the latest reading was too high to  include in that.

Weekly initial unemployment claims is one of the most important jobs indicators because, of all the jobs-related indicators, it is the closest to being a leading indicator of any kind.  Typically, we see changes in the labor market lagging the changes that we see in the general economy, but initial weekly unemployment claims are about synchronous with the general economy.  Some argue they are slightly leading.  Even if you are worried that things might slow down in the coming weeks or months, as long as the 4-week moving average of the unemployment claims stays down below 400,000 we probably aren’t in  a recession.