One of the indicators that the financial press uses to gauge the U.S. job market is unemployment insurance claims. The data, compiled weekly by the U.S. Department of Labor, tracks how many new people have filed for unemployment benefits in the previous week. Since the weekly data can be quite volatile, the 4-week moving average is typically monitored.
Today’s report showed that jobless claims inched down by 1,000 last week to 404,000, while the 4-week average fell by 7,000 to stand at 408,000, marking the lowest level since mid-August. Initial unemployment claims saw a sharp decline after reaching the 650,000 mark in March 2009; however, since late 2010, they have been stubbornly stuck in the 400,000-450,000 range. Claims usually fall near the 300,000 level in periods of rapid economic growth, while it is commonly said that a level near 375,000 is necessary just to keep up with population growth without increasing the unemployment rate.
Our research indicates that the Challenger layoff survey may be a good leading indicator for unemployment insurance claims. The data, compiled monthly by the consulting firm Challenger, Gray & Christmas, provides information on the number of announced layoffs by U.S. corporations. Commonsensically, once the announced layoffs are executed, the laid-off workers will need to apply for unemployment benefits. Our study indicates that the pass-through time is around 8 weeks. In this context, the recent spike in the Challenger layoff survey is certainly worrisome. According to the survey, the number of planned layoffs in September amounted to 115,730, the highest in more than two years and more than double August’s total of 51,114. If the correlation we estimated between the Challenger survey and unemployment claims since 1999 holds, then we may see a spike in unemployment claims over the next few weeks. Lastly, it is worth noting Challenger’s comment that September’s increase in planned layoffs was not “directly related to recent softness in the economy.”
If they say so…