Unemployment claims finally fall, outlook still grim

After rising from the mid 300s in May and June to almost 500,000 the past few weeks, we have finally seen a break in the claims for unemployment in the United States. This past week, 378,000 people filed initial unemployment claim, down 20,000 from the week before. While that is good news, overall the outlook is weak.

A more meaningful recession indicator is change in initial claim’s four-week average. The change tells us how much softer the economy is getting and the four-week average smooths out aberrations from week to week. In the past, when this number has reached 50,00 or more, the economy has always gone into or already been in recession. The four-week average is 482,500, up 165,500 from the 317,000 figure last year. This number is now at its highest level during this business cycle (see chart below).

The data are no different for continuing claims where 3,659,000 have continuing claims for unemployment insurance. The four-week average is now 1,010,250 more than at this time last year — another high for this business cycle.

Therefore, while the headline number is good, the broader trend points to a deteriorating employment environment in the United States.

Source
Unemployment Insurance Weekly Claims Report, U.S. Department of Labor