Don't Get Too Excited On the 24,000 Initial Unemployment Claims Drop

The DOL reported people filing for initial unemployment insurance benefits in the week ending on July 13th, 2013 was 334,000, a 24,000 decrease from the previous week of 358,000.  While Wall Street jumps on these figures, not so fast, initial claims are still elevated, going on six years since the start of the recession.



While this is the largest decline since April, initial claims is always revised.  For example, last week's initial claims was revised down by 2,000.  During the summer months, there are shutdowns of plants for retooling, which changes in terms of the scheduling.  The unadjusted initial claims data from July 6th does show high layoffs in manufacturing, yet there are no significant temporary layoff retooling announcements. Temporary layoffs can throw off seasonal and statistical smoothing adjustments which are based on historical data.  Distortions should be no surprise on a weekly statistical release, which is a very short time window.  States being late with processing this week's claims can also throw off the weekly figures.

Bloomberg managed to dig out some retooling layoff announcements,  If Ford temporary layoffs were only one week instead of two, this alone could have easily thrown off the initial claims seasonal adjustment.

Auto plants typically shut down to retool for the new model year, often playing havoc with the claims data in July. Michigan, Pennsylvania and Ohio were among the states reporting the biggest jump in claims two weeks ago, and all cited dismissals at manufacturing plants.

Ford Motor Co (F). said it will idle most of its North American assembly plants for one week this summer instead of two, to increase output. Three of Chrysler Group LLC’s assembly plants and all except one of its engine, transmission and stamping factories will skip a summer shutdown this year. Since its 2009 bankruptcy, General Motors Co. hasn’t had a formal summer shutdown, Mark Reuss, president of the company’s North American operations, told reporters in May.

The statistic to pay attention to is the four week moving average on initial unemployment claims.  The four week moving average decreased 5,250 to 346,000.   In the below graph we can the four week moving average is still at recession levels and seemingly staying there, now over five years.  If anyone recalls, even before the Great Recession the job market was not so hot.  The four week moving average, graphed below is set to a log scale, from April 1st, 2007.



Below is the mathematical log of initial weekly unemployment claims.  A log helps remove some statistical noise, it's kind of an averaging and gives a better sense of a pattern.  As we can see, we have a step rise during the height of the recession, but then a leveling, then a very slow decline, or fat tail.  That fat tail has taken over six years to return to early recession levels, but initial claims are still not at pre-recession figures.



As much as people wish it so, most government data is not complete and not real time.  We have repeatedly warned, ad nauseum, do not bank on the initial claims number reported in the press release for that week.  Initial claims for unemployment benefits is a weekly statistic and that implies a very short time window for data collection, it is always revised the next week, almost always upward.  One can have unusual events which throw off the seasonal adjustment algorithm.  One can have missed timing of events that can also throw a monkey wrench in one week's worth of data.  As we pointed out in our weirdness in initial unemployment claims article, states might not report their quarterly adjustments for emergency unemployment benefits and we had the infamous fiscal cliff push past the final hour, which included extending those unemployment benefits for the long term unemployed. 

Continuing unemployment claims for the previous week increased, and there are still large numbers of long term unemployed.  The below continuing claims figure doesn't include those receiving extended and emergency unemployment benefits.

The advance seasonally adjusted insured unemployment rate was 2.4 percent for the week ending July 6, an increase of 0.1 percentage point from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 6 was 3,114,000, an increase of 91,000 from the preceding week's revised level of 3,023,000. The 4-week moving average was 3,019,250, an increase of 37,000 from the preceding week's revised average of 2,982,250.

In the week ending June 29th the not seasonally adjusted, the official number of people obtaining some sort of unemployment insurance benefit was 4,519,501 with 1,636,731 people receiving EUC, which was extended to January 2014 in the 11th fiscal cliff hour.  There were 11.8 million official unemployed in June.  The number of unemployed has remained almost static.

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initial claims 343,000, last week revised to 336,000

As expected the initial unemployment insurance claims rose 7,000 but the week was also revised up 2,000 to 336,000.

Notice how the increase does not make media headline buzz and as usual, one cannot go running off of these weekly figures.

We think they are baked into high frequency trading algorithms where initial claims probably should not be used to trade on.