Why do these two artistic graphs give professional analysts something to worry about? Because they represent the correlation of initial and continuing claims figures with the employment conditions, and this correlation is pointing in an unfavorable direction (more on this at the end of the article). Just as with every other Thursday, the Department of Labor released its advanced estimate of the number of individuals applying for initial and continuing unemployment insurance benefits. Whether overdone or not, initial claims are considered an important leading indicator of the direction of the economy, and markets generally pay close attention to the weekly numbers, albeit more importantly what the weekly numbers do to the four week moving average.
What did the initial claims have to say about the economy this week? Overall, the advanced initial claims came in at a seasonally adjusted 372,000, or an increase of 4,000 over the revised 368,000 seen last week. The increase of 4,000 bumped up the four week moving average from 364,250 to 368,000, or an increase of 13% on a seasonally adjusted annual growth rate basis.
The increase also represents the third week of increasing claims. Looking at initial claims over the entire year, claims have been generally flat since February, with total claims up 1,000 over where they stood in the first week of February. The flattening of the claims figures over the entire seven month period is giving analysts concern that the improvement in the claims numbers may have bottomed out, which would indicate a deteriorating near term labor market.
Continuing claims also came in poor, with overall continuing unemployment insurance claims increasing from 3.313 million to 3.317 million. The four week moving average seasonally adjusted annualized growth rate increased from -0.4% to 2.6%, an unwelcomed sign for a group of workers already under a good deal of labor market pressure. The group continues to be, in polite terms, disappointed with the pace of the economic recovery, with this year’s stalling of continuing unemployment claims figures providing only further fuel to the discouragement fire.
What do the claims figures likely mean for the future of the American workforce? Well, it’s hard to make out too much from a few weeks of data, but the inability of the labor market to improve on the initial and continuing claims side since February of this year doesn’t look good. At the top of this article were two graphs showing the connection between the employment numbers and the initial claims figures; below is for the past two years. If you’ll notice, the first seven months of 2011 saw stronger improvement in employment and a larger decline in initial claims (i.e. the width on the horizontal axis is wider and the vertical distance is farther apart). Can the 2012 labor market catch up, or is it seventh month flattening due for deterioration? One thing is for sure: the fence sitting (flat labor market conditions) won’t last much longer, at least based on past experience, and the economy will pick a path again.