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Originally posted on 22 April 2011

Initial Unemployment Claims Rise - A Harbinger of Poor April Jobs Outlook

Posted by John Lounsbury or Steven Hansen

If you are laid off, initial unemployment claims numbers are a personally relevant statistic.  But if you are using these initial unemployment claims numbers to understand the world of jobs and economic dynamics - this statistic is irrelevant once initial claims fall below 350,000 per week.

I am constantly drawn like a moth to flame in analyzing  jobs dynamics.  There is no exactness.   Job dynamics have quirks, and historically employment levels can decline while the economy is performing positively.

We can muse if McDonald's publicity campaign of hiring 50,000 employees is a harbinger of a further expansion of employment growth.  This industry historically has a turnover rate of 150% per year -  and 50,000 new hires could be less than one month's hiring need (due to turnover alone).

Thursdays the workday in the USA starts with the release from the Department of Labor of initial unemployment claims for the previous week.  The talking head commentators on the business news channels pimp the numbers and credit the unemployment news for the market's potential open rise or fall.

Few understand the relationship between unemployment claims and jobs growth. Consider,

  • Once the 4 week moving average for initial unemployment claims enters the range between 350,000 and 400,000 claims per week from higher numbers - employment growth peaks.  Unfortunately, there is no exact number, just this general range.  The time range to the ultimate peak in employment growth has been 4-5 years.
  • Once the 4 week moving average for initial unemployment claims enters the range between 350,000 and 400,000 claims per week from lower numbers - employment growth reaches a minimum.  The time range to the ultimate bottom in employment growth has been less than one year.
  • The average weekly unemployment claims since 2000 is 388,000 - and the current 4 week moving average number released this week is 399,000.  The weekly unemployment claims currently is slightly above average for the 21st century.
  • In the Great Recession of 2007, unemployment claims barely rose before the recession hit.  Initial unemployment claims are not a good indicator of impending recessions or economic slowdowns until they are already underway.
  • It is common knowledge that private non-farm employment today is lower than the levels in 2000.  If only months are considered since the beginning of 2000 which have positive employment gains - the average increase is 135,000 per month.  In March 2011, the gain of private non-farm payroll was 230,000 - well above normal for the 21st century.
  • In the previous cycle (between the recessions of 2001 and 2007), non-farm private monthly employment gains rose as high as 305,000 in some months  and as low as 4,000 in other months - after initial unemployment claims dropped below this 350,000/400,000 threshold following the 2001 recession.

As long as initial unemployment claims do not trend upward from the current levels, history shows that employment gain dynamics should be beginning to peak in this economic cycle.  Conversely, is this a repeat of the 2001 recession where claims dropped below 400,000 only to rise again and chill the jobs recovery?

The progression to a maximum in employment growth can take a long time and can suffer pullbacks along the way.  Two steps forward, one back..............

Economic News this Week:

Econintersect issued its economic forecast for April 2011 indicating a peaking of this current economic sub-cycle.  In simple words, the same moderate recovery seen in March will continue in April.

This week the Weekly Leading Index (WLI) from ECRI improved from a downwardly revised 6.7%  to 7.7%.  This level implies the business conditions six months from now will be approximately the same or slightly improved compared to today.

Initial unemployment claims increased slightly in this week’s release.  The data for the last two months as been quite noisy, and it remains important to follow the four week moving average for analysis of unemployment to smooth out the reporting idiosyncrasies.  Keep in mind the overall trend is lower claims.  The overall trend line seems flat at this point with claims bouncing around in a tight range since early February 2011.

This was a short week with little economic data.  Housing data was as expected - not good - but this economic cycle is operating with poor housing dynamics which continues to degrade slightly.

Weekly Economic Release Scorecard:


BLS study illustrates the common myths

March Leading Economic Index


This index likely has lost its ability to forecast

April Philly Fed Business Survey


Survey is slightly less good but showing regional economy expanding

March Existing Home Sales


Sales volumes are down - normal spring house price increase underway

March New Home Sales


Any way you cut it new home sales are down - but the end is near

Aftermath of Great Recession

10 charts showing the USA atypical economic situation


Comparative analysis of the Indian States' Economic Freedom

China-US trade Balance

Michael Pettis argues inverse correlation between trade imbalance & USA interest rates

USA Deficit

Tanner & Wray offer their divergent views on handling the USA deficit

USA Budget

Guy Lerner keys off of "shared sacrifices" - and what shared sacrifice means


Rick Davis muses on Bernanke's options once QE2 ends

Financial Crisis

Washington's Blog claims lack of prosecution of those responsible for the 2007 financial meltdown makes the USA a failed state

Economic Theory

Michael Hudson maintains modern economic theory has become so abstract it misses what is important


Dick Ehnts correlates capital flows to Spanish wages


Elliott Morss found energy investment opportunities

Bankrupties this Week:  Vitro, S.A.B. de C.V., Bowe Bell + Howell, Maronda Homes

Failed Banks this Week: (none)

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