Initial Unemployment Claims for July 16, 2009

On July 16, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended July 11, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 522,000, down 47,000 from a revised estimate of initial claims of 569,000 for the week ended July 4, 2009. The 4 week moving average decreased 22,500 to 584,500. The average is down 74,250 from its peak, signaling a possible peak for this business cycle. [1]

[2]

Although the 4 week moving average is down significantly over the last several weeks, there may be anomalies in the data that make the decline a statistical glitch rather than an economic trend.  Ruth Mantell of Market Watch reports in "Initial jobless claims lowest since January," dated July 16, 2009 that

The number of initial claims in the week ending July 11 fell 47,000 to 522,000 - the lowest level since early January, the government reported...But the data are "clouded" because many of the expected temporary layoffs in the automotive sector have already occurred, a Labor Department analyst said Thursday.

"We expect a hefty rebound over the next few weeks," wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note. "The latest numbers are just far too good to be true...It is not good news, especially for the people concerned."

The government seasonally adjusts the data, assuming that auto layoffs will take place in early July. But many manufacturing layoffs, predominantly automotive, have already occurred, while others may come later or not at all. Analysts expect several more weeks of volatility in the claims data due to layoff-timing issues.

[1] Robert J. Gordon did research looking at the relationship between the 4 week moving average of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. The average may have peaked at 658,750 for the week ended April 4, 2009.

[2]  Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included a graph that compares the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. I have not attempted to adjust the data for changes in the size of labor market. The plots are measured over 94 weeks, beginning eight weeks before the recessions began. The horizontal axes begins in October 2007, the date the current recession began, and the data for the other recessions is superimposed on those dates. The graph gives some insight into why economists, politicians and others have expressed so much concern about the current recession. The current recession seems to have the depth of the 1981 recession but the 4 week moving average seems to be falling more slowly than it has in past episodes.