- by New Deal democrat
As I wrote earlier this week, the positive trend in initial jobless claims is one of the most important data points indicating there is no imminent threat of recession. That continues, but what is increasingly disconcerting is the completely contrary signal from continuing claims.
Let’s deal with the weekly numbers first. Initial claims rose 7,000 to 226,000, while the four week average declined -500 to 220,750. Continuing claims, with the typical one week delay, rose 23,000 to 1.974 million, their highest level since mid-November 2021:
As per usual, the YoY% change is more important for forecasting purposes, and so measured, initial claims were lower by -3.4%, and the four week average down -7.8%, while continuing claims were higher by 5.2%:
Since initial claims have historically led the direction of the unemployment rate, here is the update on that metric, plus initial+continued claims, which are more coincident:
Initial claims suggest if anything downward pressure on the unemployment rate in the next several months, while the aggregate initial+continued claims suggest upward pressure in the next jobs report.
There have been other periods in the past 60 years when initial claims improved, but continuing claims remained elevated. To best show this, the below graphs divide the pre-pandemic historical record into two; first, 1966-1992:
And 1993-2019:
The first thing to notice is that initial claims have always led continuing claims, which is why I have paid more attention to them. Second, there have been four extended periods — 1984-85, 1995-96, 2002-03, and 2006-07 — where both measures of jobless claims were substantially higher YoY without a recession occurring. In two of those cases — 1985-86 and 1999 — continuing claims lingered higher for many months after initial claims turned down YoY.
But in no case have initial claims, measured monthly, remained more than 12% higher YoY for at least two full months without a recession occurring. And, to reiterate what I’ve said above, initial claims always led.
It is possible that we are seeing some of the same seasonal variation this summer which gave rise to the massive downward revisions to the May and June employment reports. If so, this is likely to reverse itself within the next few weeks as the school year gets started. But in the meantime, the positive signal from initial claims remains one of the two most potent signs (the other being stock prices) that are contra to a danger of near term recession.
