- by New Deal democrat
This week, in addition to my usual look at jobless claims, especially in view of my post earlier this week breaking down the components of aggregate nonsupervisory payrolls, I want to compare them with several other indicators of increased joblessness in terms of their expansion and pre-recession dynamics.
First, let’s look at this week’s update. It is simply very hard for me to conceive of any recession being imminent as long as people aren’t getting laid off. The historical look at the 4 week moving average of claims shows that they have *always* trended higher before a recession begins, with the very least warning being 2.5 months in 1981:
Further, the monthly average of initial claims has almost always been higher by 10% or more YoY before the onset of recessions, with the exception of the oil shock of 1974 and the 2008 Great Recession:
Which means that this week’s data is a strong negative of any imminent recession, regardless of the copious amounts of other soft data. As I pointed out yesterday, it has been one of the three pillars holding up this expansion.
Initial claims declined -8,000 to 205,000, one of the lowest numbers in the past 50 years. The four week moving average declined -750 to 210,750. With the typical one week lag, continuing claims rose 10,000 to 1.857 million:
As usual, it is the YoY% change which is more important for forecasting purposes. So measured, initial claims were down -9.1%, the four week average down -7.9%, and continuing claims down -1.3%:
These are simply very positive numbers, totally inconsistent with any imminent recession.
Let’s do our typical look at how these compare with the unemployment rate. To back up a bit, here is the historical look at the 4 week average of claims compared with the unemployment rate, measured YoY:
Simply put, going back 60 years, initial claims have always started rising before the unemployment rate and always peaked before the unemployment rate, with the closest point being only 2 weeks during the 1980 recession.
Now here is the post-pandemic look:
Since last July, initial claims have been forecasting that the YoY comparisons in the unemployment rate would improve. Here is the same data in absolute terms:
Although the unemployment rate ticked up 0.1% last month, both initial and continuing claims still indicate downside pressure on that rate.
Now let me expand this discussion to three other metrics of employment softness: layoffs and discharges from JOLTS, the number of newly unemployed by less than 5 weeks, and aggregate hours of nonsupervisory workers, both of which are from the monthly payrolls report. I included this last metric because, as I pointed out several days ago, it typically is the first component of aggregate payrolls to decline, with average wages holding up usually into the onset of recessions.
First, here is the historical look at each, broken down into two time periods because layoffs and discharges were not reported until 2001:
Now here is the post-pandemic view:
The short term unemployment less than 5 weeks metric is very noisy, so to extrude signal, can only be looked at on a 3 month moving average basis. Comparing the metrics, one 3 occasions short term unemployment turned up first; but on 3 other occasions initial claims turned up first. One time they turned up simultaneously. Meanwhile, the (inverted) number of hours worked always turned up last, frequently not until the onset of the recession.
Now let’s look at the same data YoY, first historically:
And now the post-pandemic view:
On a YoY% change basis, initial claims *always* turned up first, with the exception of 2001 when they turned up simultaneously with the three month average of short term unemployment.
So the first lesson is that initial claims are a much less noisy metric than short term unemployment, and are the more leading of the two.
Secondly, notice that while (inverted) aggregate nonsupervisory hours have always turned up last, they are the least noisy of any of the four metrics, and they have also turned up well before the onset of recessions.
In other words, when we compare all four metrics, the best thing to do is to look at initial claims, especially YoY, and then look for confirmation by aggregate nonsupervisory hours. Only when both signal is there the most reliable indication of a recession being close at hand.
And at present neither are signaling. This pillar of the post-pandemic expansion remains firmly intact.