Thursday, November 2, 2023

Initial claims: were the recent lows just unresolved seasonality after all?


 - by New Deal democrat

Initial jobless claims rose 5,000 to a 7 week high of 217,000 this week. The 4 week moving average rose 2,000 to 210,000 from its 9 month low of 208,000 last week. With the usual one week delay, continuing claims continued their recent sharp ascent, up 35,000 to 1.818 million. Aside from 2 weeks in April, this is the highest level of continuing claims since December 2021:

The YoY% changes, which are more important for forecasting, were higher by 6.4% for weekly claims, and 3.8% for the most important 4 week average. Continuing claims were higher by 27.0%:

Since initial claims are not higher by over 10% YoY, they indicate continued expansion.

Finally, the average of initial claims for the month of October was higher by 4.3% YoY. Since initial claims lead the unemployment rate by several months, this implies an unemployment rate of 3.7%-3.8% a few months from now (3.6%*1.043=3.75%):

Because several months ago initial claims averaged about 10% higher YoY, tomorrow we could see an unemployment rate as high as 4.0%, although 3.7% would not be inconsistent with the overall trend.

In addition to expecting an unemployment rate in the above range, based on the softness we saw in the quit rate in yesterday’s JOLTS report, I am looking for continued deceleration in wage gains to 4.2% or even 4.1% YoY, although a noisy increase to 4.5% would not be inconsistent with the downward trend.

As to job growth itself, last month’s increase of 336,000 was an outlier that was the highest since January, suggesting a possible break in the trend of deceleration. Tomorrow I will be looking to see if that was just noise or not. A significant downward revision would hardly be a surprise.