Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending June 1, 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NOTE: You may be reading an outdated analysis.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 June 1 2013 - FRED

Source: U.S. Department of Labor

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 4,500) with the latest report.  We have a newly confirmed upward (bad) trend of about 3,700 more claims per week.  The 4-week moving average has now crossed above 350,000 (a healthy spot).

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending June 1 2013 - Trends

Current Trend: (Week ending) May 4 – June 1, 2013.  During that time, there was a confirmed upward (bad) trend in which the four-week average of initial weekly unemployment claims was rising by about 3,700 per week.  The latest report is what converted this trend into a confirmed one.

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 8, 2013.   If the most recent trend (excluding off trend points) were extended perfectly, the actual week ending June 8 reading would be about 373,000 so that the 4-wk moving average would be at the expected level of about 355,000.  That seems a bit too much of a one-week increase.  More importantly, what would it need to be just to continue the confirmed 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 363,000 single week reading for the week ending May 11 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 359,000 or higher would continue the current upward trend.  That means next week’s single reading needs to rise by at least 13,000 to continue the upward trend.  Therefore, next week’s report has a good chance of being too low to include in the upward trend.

Easy Take

With the latest report on weekly jobless claims, we had a reading that confirmed the previously-unconfirmed rising (bad) trend that began May 4.  My calculations show that next week’s reading has a good chance of being too low to include in the current rising trend.  Unfortunately, the latest report moved the 4-week moving average above the 350,000 level, which I would consider to represent a healthy spot.  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 11,000 lower than last week’s revised reading – coming in at 346,000 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 4,500.  The four-week moving average (352,500) is barely higher than the 350,000 I’d like to see – but it’s clearly not anywhere near a recessionary level.  We currently have a confirmed upward (bad) trend of about 3,700 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.