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Brooks Wilson's Economics Blog: The 4 Week Moving Average of Initial Unemployment Claims and the Unemployment Rate as of November 6, 2009

Friday, November 6, 2009

The 4 Week Moving Average of Initial Unemployment Claims and the Unemployment Rate as of November 6, 2009

Robert J. Gordon did research looking at the relationship between the 4 week moving averages of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. Barring a deep double dip recession, the average peaked at 658,750 for the week ended April 4, 2009. On November 5, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended October 31, 2009 in "Unemployment Insurance Weekly Claims Report." Seasonally adjusted initial claims was 512,000, down 20,000 from a revised estimate of initial claims of 532,000 for the week ended October 24, 2009. The 4 week moving average decreased 3,000 to 523,750. The average is down 135,000 from its peak, signaling a probable peak for this business cycle.

Today, the government reported that the unemployment rate increased to 10.2% (Employment Situation Summary). There are few if any little green shoots in the report. One of my favorite economists and bloggers, James Hamilton, does a little graphical analysis in, "Current economic conditions," and comes to the conclusion that, based on current data, the recovery will be slow.

Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have included graphs that compare the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. Each compares the 4 week moving average of unemployment claims and the unemployment rate of the recession beginning in 2007 to those of the previous recessions. I have not attempted to adjust the initial claims data for changes in the size of labor market or the unemployment rate for changes in the natural rate of unemployment. The plots are measured over 111 weeks, beginning eight weeks before the recessions began. The horizontal axis begins in October 2007, the date the current recession began, and the data for the other recessions are superimposed on this date. The graphs 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 has fallen more slowly now than in the 1981 recession.  Unemployment peaked between the 85th and 89th weeks at 10.8% and began to fall in January of 1983.  By June, the unemployment rate of 10.1%, lower than current peak of 10.2% reached in October, 2009 during the 110th week of the current recession.



The 1990 recession was shallower than the current recession both in terms of length and depth.  It lasted eight months from peak to trough; the current recession has not officially ended.  The 4 week moving average hitting 501,250 forty-two weeks after the 1990 recession began compared to 658,750 seventy-four weeks after the current recession began.  The 4 week moving average in yesterday's announcement is still 22,500 above the peak of the earlier recession.  The recovery from the 1990 recession was slow.  Unemployment was still rising two years after the recession began and would peak at 7.8% in June 1992, one months later than the time frame pictured in the graph.  Still 7.8% is 2.4 percentage points lower than the current recession and we do not know when it will peak.



The recession which began in 2000 was similar in size, length, and depth to the 1990 recession.  It lasted eight months from peak to trough, with the 4 week moving average topping at 517,00 thirty-four weeks after the recession began.  Unemployment peaked at 6.3% approximately 118 weeks after the recession began.  Again, the current recession will last at least as long, experience higher levels of initial unemployment claims and unemployment.       

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