Guest post: Initial claims hit lowest in 5 months, continuing claims hit record

Submitted by Edward Harrison of the site Credit Writedowns.

The U.S. Labor Department came out with its latest weekly report. The data were mixed because initial claims are pointing to recovery, but continuing claims continue to hit new records. The long and short: the U.S. Labor market remains weak and will continue to be weak for the foreseeable future.

For the week ended June 6th, we saw 601,000 initial claims on a seasonally adjusted basis, the lowest such figure since January. That brings the widely tracked 4-week average down to just under 622,000. But remember, you have to go back to 1982 to get a figure as high before this particular recession. Moreover, continuing claims hit a record 6.82 million, demonstrating that companies simply are not hiring – and that is going to be a drag on growth (no job, no spending). With the unemployment rate at 9.4% in May, we should expect 10% by the end of summer.

Nevertheless, I should note that the unadjusted numbers do look better than the seasonally-adjusted numbers. The 4-week average for initial claims is 539,000, more than 80,000 lower than the adjusted number. For continuing claims, there is also a huge discrepancy, with the 4-week average continuing claims figure having fallen for every week since April 4th to 6.13 million. This is 600,000 less than the seasonally adjusted figure.

My takeaway from this is that seasonal adjustments may be driving the continuing claims figure higher and misleading analysts into believing people are not finding jobs. The same dynamic is also apparent in the unemployment numbers where the unadjusted establishment survey showed a job increase of 319,000 in May while the seasonally-adjusted figure showed we lost 345,000 jobs. You should note that the Birth/Death model added 220,000 jobs to the unadjusted number so the number is not as bullish as it seems (see my Friday post “Payroll data mixed despite the bullish headline job loss figure“).

So, where does that leave us? When will this recession end? A lot of professional economists are now seeing a potential end by the end of Summer. Richard Berner and David Greenlaw at Morgan Stanley and Paul Krugman of Princeton are three notables here. Robert Gordon of Northwestern University even suggests that we are already in recovery. I have been saying for a while that we are looking at late this year or early next year. I suspect that the trend will be much clearer come the end of summer, especially in regards to seasonal adjustments.

With this in mind, I recently started a poll. The question: When will the U.S. Economy recover? Here are the four potential answers:

  • I am on with the “green sh%%ts brigade. So it will be summer, mate.
  • Ed, you’re right, it’s Q4 or Q1 2010.
  • Recovery is a long way off, sometime in 2010.
  • That’s an idiot question. There will be no recovery to speak of.

Please stop by and take the poll or add your two cents. It is interesting to see what blog readers are thinking.

Unemployment Insurance Weekly Claims Report – U.S. Department of Labor

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


  1. profnickd

    When the government throws $787 billion of funny money around there will be some effect on unemployment.

    The question(s) of course is: what happens to unemployment if/when the government stops throwing around printed money… and what happens to inflation if the government continues to throw printed money around?

  2. Dataman

    "The advance number of actual initial claims under state programs, unadjusted, totaled 576,695 in the week ending June 6, an increase of 76,312 from the previous week."

    Seasonally unadjusted claims actually showed an increase from previous week.

  3. Brick

    Yes the unadjusted figures show a rise the question then becomes why is the seasonal adjustment in April 125000 and only 25000 in May.
    The advance unadjusted number for persons claiming UI benefits in state programs totaled 6,127,413, an increase of 93,810 from the preceding week.
    Still we can all watch the media spin this so treasury yields go through the roof.

  4. Anon1

    OK, I am going to do here what I have done at a few other econ sites. I am going to take issue with the binary thinking of economists that believes there are only two states: recession or recovery.

    Bullcrap. A reduction or even flat line in new unemployment claims does not in any way, shape, or form equal 'recovery'. There actually IS more than just a binary state of recession OR recovery. There is the possibility of "stasis". It is quite possible for new claims to go flat and for there NOT to be a recovery for an indefinite period of time. There is no basis upon which to believe in this binary model.

    Stasis is a possibility. Stasis followed by another dip is possible. A rough bottom is possible in which claims go up, go down, go up, go down for an indefinite period of time is possible (averaging out to "stasis").

    I honestly believe that economists have a brain injury. They need to see a neurologist to determine if there is some organic reason for their absolute inability to see the economic world through anything other than binary blinders.

  5. Anon1

    Oh, and another thing. "Finding a job" is NOT accurate if the "job" is Walmart greeter, burger flipper, clerk at 7-eleven, etc.

    All jobs are NOT created equal and thus, simply claiming "people are finding 'jobs'" is a bullshit statement without a full analysis of the TYPE of job and the PAY vs what came before.

  6. Edward Harrison

    Anon1, you're right on the money: recovery is not the right term for what we are about to see (that is, if we see a recovery at all as I believe we will). It's what I have been calling the 'fake recovery' because it is not based on anything that is sustainable over the longer term.

    Meanwhile, unemployment will continue to rise and the average American will not benefit — even as banks go back to business as usual. I like Obama and a number of things he is doing. But, that is not what I would call change you can believe in.

  7. ScottB

    Ed, thanks for your analyses, I enjoy reading them and find them informative and thoughtful.

    I'm not sure that you understand what "seasonal adjustment" means. Hiring typically increases in the spring, due in part to weather, and so claims tend to decline as well. The question becomes, is the improvement due simply to seasonal trends, that will disappear in the coming months, or is there an underlying improvement or decline? That's what seasonal adjustment does–it takes out the seasonality, to get at the underlying trend.

    There is always a ton of hiring going on, good times or bad. Historically, there's an average of 2 million jobs a month created through expansions, 2 million lost through contractions, and about half a million gained and lost through births and deaths. In good times, the expansions and births get the upper hand, in bad times, the balance shifts towards contractions and deaths. You can check the historical data (derived from the universe of employers reporting their monthly employment to state employment agencies) at BLS, look for business employment dynamics.

    One also has to account for increasing population, so that employment might increase, but slower than population growth, which means increasing unemployment, lower hours, more part-time work, lower labor force participation rate, more discouraged workers.

    I personally agree more with Anon1 above (and I'm an economist, for what it's worth), that we will hit bottom by the end of the year, and essentially bounce up and down for quite a while. GDP may begin to increase, but it will continue to fall behind potential GDP. Recovery–where we start catching up–is years away, and expansion–where we're at or above potential GDP–is a long, long ways off.

  8. autodidact

    Probably the most likely scenarios are the L-shaped "recovery" (which is not a recovery but stasis at a new lower normal), or a "backwards square root sign-shaped recovery" (LOL) suggested by George Soros. The economy bottoms and bounces, but not much. Then stasis at a slightly higher level, but still below pre-crash economic activity.

    Still, it looks like rising interest rates will force some kind of fiscal discipline on the federal government, which will be painful in the short term, but much healthier in the long run. Interest rates have risen so much now since the start of Fed quantitative easing that many mortgage deals are essentially collapsing and are not doable. See Mish today for word on the mortgage/real estate market freeze-up.

    The market's response to massive new federal borrowings, evident in the Treasury market, will choke off any perceived recovery. Maybe we aren't even near the bottom of the L yet.

  9. Anon1


    I just hope that "fiscal discipline" by the federal government is where there is the biggest bang for the buck: defense cuts rather than important social spending cuts.

    Yeah, right, snowball's chance in hell – the government would STILL increase "defense" spending even if tax revenues were absolutely zero. They'd figure out a way to spend up the yingyang for 750+ military bases worldwide, for B-2 bombers, F-22 fighters, etc, etc while keeping MORE wars going in places we have no business being and totally walling themselves into a fortress D.C. to keep out the angry hoards or totally f*cked and ignored citizens in the real world.

    They'd rather cut research funding (the future), college funding (the future), road and bridge repair funding, social security, etc, than cut off Boeing or any other defense industry crime syndicate.

  10. Edward Harrison


    I know well why the seasonal adjustments are there and this is one data series I have tracked for quite some time.

    Here is a chart of what the numbers look like without seasonal adjustments.

    You'll note that I was using that post to show how seasonal adjustments were understating job losses in December and January and this turned out to be true.

    You asked the question I am alluding to when I question the adjustments: are the present seasonal adjustments accurately reflecting the labor market? My answer is that we won't know for some time.

    You probably also know that the seasonal factors that the Dept of Labor uses are set ahead of time for the entire year but are subsequently re-calculated later.

    So that means people like myself who track this data series need to keep track of historical data revisions.

    I mention this because I think it likely that the adjustment factors will eventually reflect less divergence between the unadjusted figures and the seasonal numbers.

    One reason I use the y-o-y change in the unadjusted numbers to track this series is that this has been a consistently accurate indicator of the onset of recession or recovery and is unaffected by seasonal adjustments.

    In regards to the creation of jobs, you could look at this as a stock and flow, where there are always jobs created. The question is whether there are enough jobs created to mitigate the large loss of jobs and to absorb those already unemployed.

    What we are now seeing suggests that a 550K weekly number is about break even at this point. Below that number, you are going to start to see jobs added in the establishment survey for the monthly employment situation summary.

  11. johnops100

    We will see GDP go positive later this year but this accomplishment will have very little meaning as it will mainly be the result of stimulus. Once stimulus effects disappear, the economy will suffer again.

    And there will be calls for more stimulus and more issuance. This is the pattern we have seen in Japan for the last 10+ years…

  12. Dave Raithel

    Didn't notice whether anybody above popped over to and did the poll. I am melancholy to report that I am oddly in sync with the clear plurality … there ain't no recovery.

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