Thursday, March 29, 2007
Disappointing Unemployment Release
Different people attribute varying levels of importance to the initial claims weekly release. A lot of people watch the four-week moving average for initial claims. Obviously if that shoots upwards (it isn't doing so, it is dropping) it would be a negative sign.
However, I basically ignore the initial claims figures, but I place a high importance upon the continuing claims figure. The reason is that rising SA continuing claims show that displaced workers are having problems getting new jobs. To me, high initial unemployment claims mean little if continuing claims are not rising. Economies are constantly shifting and adapting, and worker displacement is not a problem unless the economy can't absorb those workers into new jobs.
This stat is probably of more than usual importance right now. We have a lot of illegal, self-employed and contract workers who can't claim unemployment, but they will compete with workers who can claim unemployment and make it more difficult for those insured unemployed to get new jobs if they are losing their jobs or substantial income from their jobs. Therefore this stat probably offers us a pretty good estimate of real employment conditions at the moment - better than the household or establishment survey. We know the number of such workers is high because the UI figures from the states in 2006 were so much higher than the establishment and household figures that the total workforce was adjusted upward by an unprecedented number at the beginning of 2007.
It's too early to say one way or another. Last week looked somewhat encouraging; for the first time SA and NSA continuing claims were just a bit shy of the prior year totals. This week the SA took a bounce up and the prior year gap increased for SA, NSA and the four-week moving average.
If you go to this page and pull the national weekly numbers for 1990 to the present, you can see that it is unusual for SA continuing claims to grow from the second week of the year through the twelfth week of the year. When it does, it is a sign of employment weakness. A better measure yet is to average the first two weeks of the year and the eleventh and twelfth weeks of the year because of retail layoffs and the shifting week placements.
We lack a few weeks to get the verdict, but as of March 17th we are up about 50,000 continuing claims. If this doesn't improve, it would be a very negative indication. Because of the strongly seasonal nature of construction employment, this measure probably is a good proxy for construction employment - it is, after all, true that more building tends to occur in strong economies. In any case, it will probably be one of the better first half leading indicators we get.