As a backdrop for tomorrow’s big employment report, today the government released its accounting of initial and continuing claims, coming in down 12,000 and 6,000 respectively. On a four week moving average, the Department of Labor’s seasonally adjusted initial claims increased by 250, while the newly released continuing claims figures decreased the four week moving average by 3,500. The general indifference of market participants to the initial and continuing claims figures over the past six months is largely the result of the claims figures’ uncertainty over the direction of economic activity – the measures have been largely flat over the past six months, with no leading indication of where the economy is heading. With this background in mind, here’s a brief discussion of the recently released figures.
The initial claims figure represents a welcomed sign of improvement in labor market conditions from the elevated figures seen through the second quarter of 2012. With the exception of January, the recent figures, though, do not represent improvement on the yearly basis, with the four week moving average claims figures at the exact same level as where they were for the week of February 11th. The general flat nature of the initial claims figures simply represents another red flag in the overall analysis of economic conditions, with this week’s numbers making the flag more pink than red.
Switching to the continuing claims numbers, the four week moving average moved down by 3,500 to 3.321 million. The improvement in both the four week moving average and in the actual weekly figure provided analysts further evidence that conditions are not deteriorating, although conditions, as measured by the continuing claims numbers, are not improving.
With this backdrop in mind, what should market participants anticipate the continuing and initial claims figures to look like for the rest of the month of September? Well, part of the answer lies in the chart above, which represents the weekly continuing claims figures divided by the weekly initial claims figures, with the more orange the dot, the greater the ratio is above its historical average, while the more blue the ratio, the less the ratio is below its historical average. The measure is important because it shows the stock of the unemployed against the flow of individuals with a high probability of entering this stock (just a note: the continuing claims figure does not represent the complete stock of the unemployed). When the measure is high, it means job findings continue to be difficult, while the opposite hold true when the measure is low. There are only two ways for the measure to improve: either initial claims move higher while holding continuing claims constant or continuing claims improve while holding initial claims constant. The measure currently stands at 8.81, representing about a one point improvement over that seen at the beginning of the year. With continuing claims generally on a flat to slightly positive trend bias, this measure is unlikely to provide much improvement, while initial claims hold the same general characteristic. With this backdrop in mind, it’s unlikely to see any labor market improvement in initial and continuing claims figures in the coming month.