With jobless claims now at 383,000, we should ask if they have been overstating layoffs
This morning, the U.S. Department of Labor reported a surprisingly low 383,000 first time claims for unemployment insurance. This number, which is the lowest we have seen in two-and-a-half years in the U.S., was well below expectations. It also dragged the less volatile 4-week average down to 415,500, a decrease of 16,000 from the previous week’s average. *(Note: all of these are seasonally adjusted figures).
While this is certainly good news for those hoping for a jobs recovery in the U.S., we should keep in mind that the 4-week average for initial claims is still above the number we saw when the recession first hit in December 2007. It is also still above 400,000. The jobs picture in the U.S. is improved but still relatively weak.
Here are two tidbits that might give you a more granular feel on the strength or weakness of the job market. First, one reason I have not even mentioned continuing claims in quite some time is because these numbers have loss any meaning given the number of long-term unemployed in the United States. As I started writing this piece, it occurred to me that other job market followers have followed suit; I haven’t seen a mention of the continuing claims number on the jobless claims reporting in weeks.
A second tidbit comes from an interesting paper by economists at the Federal Reserve Bank of San Francisco. They noted that we may be making an apples-to-oranges comparison with early or pre-recession initial claims versus initial claims today. The take-up rate FOR unemployment insurance in the U.S. has increased significantly since the recession began in December 2007. They write:
During 2010, the average take-up rate was 37% higher than in 2007. This has caused the initial claims data to exhibit an upward bias as a measure of job losses. Our alternative measure of initial claims, which corrects for the take-up rate, lies significantly below the official readings for 2010. When initial claims are adjusted for corrections in the take-up rate, the average level in first eleven months of 2010 was 386,000, not the official 468,000. However, it is crucial to note that the take-up rate itself is an indicator of the health of the labor market. It increases when the average duration of unemployment is high. And long-duration unemployment, of course, is an indication of poor job-finding prospects. Consequently, when we consider both UI claims and changes in the take-up rate, we find little evidence that the labor market was much stronger in 2010 than previously thought.
Source: Do Initial Claims Overstate Layoffs? – FRBSF