Identifying the Peak in Initial Unemployment Claims
I think this morning's news release of initial unemployment claims contains some good news -- enough incremental reduction in new claims that we might be able to declare that the series peaked back in early April at a 4-week moving average of about 658,750. Here's the last 40 years of the series:
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| From CGG |
It is always hard to distinguish a blip from a change in course in real time, but I think the additional 14 weeks of data is enough to give us confidence that we won't see initial claims for unemployment insurance rise back to that level. So I'll take the good news for what it is.
But remember this news is and what it is not -- initial claims are a measure of acceleration, not velocity, in the labor market. The economy is not getting worse as fast as it was a few months ago. That does not mean that it is getting better day by day. In order for the news release on this series to indicate that the labor market is getting better, the level would have to fall substantially (into the mid 300,000s by my guess) from where it currently is.
Here's a post from last August when the series was on the way up.
Do not forget that there are
Do not forget that there are serious questions about the seasonal adjustment for the last few observations.
Robert Gordon
The Northwestern sage was on this back in April. He predicted that the NBER will eventually call the trough in May or June of this year.
Out of the Woods?
I agree from looking at the graph that it looks like the peak is past, but I also think it's too late to tell if this is a sign of recovery.
As Bloomberg puts it, “…there is going to be a lot of volatility over the next couple of weeks. Having said that, the trend in jobless claims is clearly downwards and we would expect that to show through as we keep moving through the third quarter, and that is one of the clearest signs out there that the recession is coming to an end.” (quoted from http://www.newsy.com/videos/unemployment_numbers_too_soon_to_celebrate)
A Slower Decline, Not a Recovery
Let me repeat that this is not a sign of recovery -- that is determined by the level of the curve being lower than its historical average or some comparable threshold. This is a sign that the pace of job loss has likely peaked. It does not indicate that we have stopped losing jobs. And, given that, there is no way to claim that the trough will be in April or May of this year -- the economy was still shedding jobs at a rapid clip in those months.
As to volatility, it is not typical of this particular series to retreat this much from a peak this high.