Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending May 25, 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NOTE: You may be reading an outdated analysis.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 May 25 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) increased (by 6,750) with the latest report.  We have an unconfirmed upward (bad) trend of about 1,250 more claims per week.  What’s worse, the latest single week reading was too high to include in this slowly rising trend, and it is nearly certain that next week’s report will not stop the rising trend.  While the 4-week moving average is still barely below 350,000 (a healthy spot), the rising trend should move back above that level quickly.

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending May 25 2013 - Trends

Source Data: U.S. Department of Labor

Current Trend: (Week ending) May 4 – May 18, 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 1,250 per week.  But the two single week reading was too high to be included in the slowly rising trend.

Last Confirmed Trend: (Week ending) Apr 13 – May 4, 2013.  During that time, initial weekly unemployment claims were decreasing (good) by about 8,750 per week.

Projected Next Data Point

The next report is for the week ending June 1, 2013.   If the most recent trend (excluding off trend points) were extended perfectly, the actual week ending June 1 reading would be about 312,000 so that the 4-wk moving average would be at the expected level of about 343,250.  That would be the lowest single weekly reading since before the recession began in December 2007, so don’t get your hopes up.  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 328,000 single week reading for the week ending May 4 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 320,000 or lower would be too low to include in the current upward trend.  That means next week’s single reading needs to drop by at least 34,000 to avoid continuing an upward trend.  Therefore, next week’s report will almost certainly NOT stop the current upward trend.

Easy Take

With the latest report on weekly jobless claims, we had a reading that was too high to include in the downward (good) trend that began April 13, and it broke the confirmed downward trend as of the May 4 time point.  In its place, we have an unconfirmed rising trend that began on May 4, although it’s not rising very fast.  My calculations show that next week’s reading has very little chance of stopping this rising trend.  So, although we’re still positioned (barely) below the 350,000 level, which I would consider to represent a healthy spot, the continuation of the rising trend will move us back above that range into a less healthy area quickly.  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 higher than last week’s revised reading – coming in at 354,000 this time.  The latest single reading was higher than the one that it replaced in the 4-week moving average, causing a rise in the 4-week moving average by 6,750.  The four-week moving average (347,250) is still excellent – nice and low.  We currently have an unconfirmed upward (bad) trend of about 1,250 claims per week, and it’s very likely that next week’s report will not stop this rising trend.

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.