Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending February 23, 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NOTE: You may be reading an outdated analysis.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 Feb 23 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 6,750) with the latest report, so we still have an unconfirmed rising (bad) trend of about 2,900 claims per week.  But the latest report was too low to include in that trend, and my calculations suggest it’s most likely that next week’s report will also be too low to include.

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending Feb 23 2013 - Trends

Source Data: U.S. Department of Labor

Current Trend: (Week ending) Jan 26 – Feb 16, 2013.  During that time, there was an unconfirmed upward (bad) trend in which the four-week average of initial weekly unemployment claims was rising by about 2,900 per week.  But the latest reading was too low to include in that unconfirmed rising trend, so there is hope.

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 2, 2013.   If the most recent trend (excluding off trend points) were extended perfectly, the actual week ending March 2 reading would be about 406,500 so that the 4-wk moving average would be at the expected level of about 364,600.  That would be a huge shock – it won’t happen.  More importantly, what would it need to be just to continue the unconfirmed rising 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 368,000 single week reading for the week ending February 2 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 374,000 or higher would continue the upward trend.  That means even a rise of 29,000 in claims would be too low to include in the upward trend.  Therefore, next week’s report will most likely be too low to include in the rising trend and may even break the trend before it becomes confirmed (would require a single week reading of 360,000 or lower).

Easy Take

With the latest report on weekly jobless claims, we have a trend, albeit unconfirmed.  And unfortunately, it’s a rising trend – but the latest report has put doubt into this trend by coming in too low.  My calculations show that it’s most likely we’ll see another reading that’s too low next week – with a great chance this unconfirmed trend will never become confirmed.  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 22,000 lower than last week’s revised reading – coming in at 344,000 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 6,750.  We currently have an unconfirmed rising trend of about 2,900 claims per week.

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.