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Brooks Wilson's Economics Blog: The 4-Week Moving Average of Initial Unemployment Claims Increases

Thursday, January 21, 2010

The 4-Week Moving Average of Initial Unemployment Claims Increases

The data released today in the "Unemployment and Insurance Weekly Claims Report" was not good.  The report states that
In the week ending Jan. 16, the advance figure for seasonally adjusted initial claims was 482,000, an increase of 36,000 from the previous week's revised figure of 446,000. The 4-week moving average was 448,250, an increase of 7,000 from the previous week's revised average of 441,250.
Robert J. Gordon researched the relationship between the 4 week moving averages of initial unemployment claims and economic activity 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.
Comparing the movement in the 4-week moving average during this recession to the previous three shows that the averages seem to be converging and yet the unemployment rate during the earlier three were either much lower or declining.  This suggest that something else is happening.  In "Decline in the Labor-force Participation Rate," I compared the labor-force participation rate of the past four recessions and found that the rate has declined more precipitously during the current recession. 

The 4-week moving average of initial claims, unemployment rate, and labor-force participation rate are probably tied to an omitted variable in the simple graphical presentations.  Two economists offer different explanations for the current slow recovery.  Martin Feldstein suggests that intervention was necessary, but that the interventions were flawed in "Missing the Target."  In "Massive Government Intervention Drove U.S. Deeper Into Depression," Thomas Sowell goes one step further and concludes that government interventions lengthen and deepen economic declines.  

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