Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending May 11, 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NOTE: You may be reading an outdated analysis.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 11 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 1,250) with the latest report.  We have a confirmed downward (good) trend of about 8,750 fewer claims per week.  But the latest single week reading was too high to include in the downward trend, and it appears likely that will be the case for next week’s reading also.  While the 4-week moving average is well below 350,000 (a healthy spot), any new rising trend could move back above that level fairly quickly.

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending May 11 2013 - Trends

Source Data: U.S. Department of Labor

Current Trend: (Week ending) Apr 13 – May 4, 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 8,750 per week.  But the latest single week reading was too high to be included in the downward trend.

Last Confirmed Trend: (Week ending) Mar 30 – Apr 13, 2013.  During that time, initial weekly unemployment claims were increasing (bad) by about 3,500 per week.

Projected Next Data Point

The next report is for the week ending May 18, 2013.   If the most recent trend (excluding off trend points) were extended perfectly, the actual week ending May 18 reading would be about 264,000 so that the 4-wk moving average would be at the expected level of about 319,750.  That would be the lowest single weekly reading since I was born at least, so you can forget about that!  More importantly, what would it need to be just to continue the unconfirmed 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 342,000 single week reading for the week ending April 20 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 327,000 or lower would continue the downward trend.  That means next week’s single reading needs to drop by at least 33,000 to be included in the current downward trend – a tall task.  Therefore, next week’s report will most likely be too high to include in the current downtrend.

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.  My calculations show that next week’s reading has very little chance of continuing the downward trend.  So, although we’re now positioned well below the 350,000 level, which I would consider to represent a healthy spot, any new rising trend that might develop could move us back above that range into a less healthy area fairly 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 32,000 higher than last week’s revised reading – coming in at 360,000 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 1,250.  The four-week moving average (339,250) is excellent – nice and low.  We currently have a confirmed downward (good) trend of about 8,750 claims per week, but it’s very likely that next week’s report will be the second consecutive reading that is too high to include in the current downward 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.