Thursday, June 30, 2022

Initial claims continue weakening trend, but are not signaling recession this year


 - by New Deal democrat

Initial jobless claims declined -2,000 (from an upwardly revised 233,000), to 231,000 last week, vs. the 50+ year low of 166,000 set in March. The 4 week average rose further, by 7,250 to 231,750, compared with the all-time low of 170,500 twelve weeks ago.  Continuing claims declined 3,000 (from an upwardly revised 1,331,00) to 1,328,000, which is 22,000 above their 50 year low set on May 6:

Initial claims have been in an uptrend for nearly 3 months. If this continues one more week, they will no longer qualify as a “positive” in my array of short leading indicators, although they have not risen to levels that would change their rating to a negative.

Which brings up the issue, in this weak and deteriorating economy, just what would it take to flip this indicator to negative?

Four years ago in 2018, discussing a similar increase, I reviewed the entire 50+ year history of initial claims, concluding that “there are almost always one or two periods a year where the four week moving average of jobless claims rises between 5% and 10%. About once every other year for the past 50+ years, it rises over 10%. Typically (not always!) it has risen by 15% or more over its low before a recession has begun. And a longer term moving average of initial claims YoY has, with one exception, turned higher before a recession has begun.”

The first criterion can’t be graphed using FRED tools, but here’s what the second criterion looks like historically:

The current situation fulfills the first criterion, as claims are up about 35% from their *very* low starting point, but fails the second criterion. Claims are down roughly 45% from one year ago:

At the moment, claims have stabilized in the range of 230,000. At worst, the current uptrend in claims (so far!) is consistent with a potential 0.1% uptick in the unemployment rate going into autumn, which as I discussed last week, under the Sahm Rule it’s very unlikely that the unemployment rate will signal the onset of a recession during that time. Even if claims were to continue to rise from here on average about 4,000 a week (their average for the last 12 weeks), they would not turn negative YoY until November, which would be a short leading indicator for a recession thereafter.