Pretty much every Thursday morning this year, we've had a head-scratching mystery about the number of people filing new claims for unemployment benefits being exceptionally low, amid reports of layoffs and a softer job market.
Why it matters: The job market remains strong, but new seasonally adjusted data implies it isn't as extraordinarily tight as was originally implied by the sub-200,000 weekly figures that prevailed over the last few months.
- It also shows how the unprecedented economic disruption of the early phases of the pandemic three years ago continues to make interpreting data dicier than usual.
State of play: Weekly claims are a useful early warning system for problems in the labor market. They tend to bounce around within a reasonable range — 200,000 or so people filing jobless benefits every week in a healthy labor market; 400,000 or more in a recession.
- But in a single week of March 2020, more than 6 million people filed jobless claims, one of 10 weeks in a row in the millions — completely outside any historic norm.
- This created a distortion of the math the Labor Department does to correct for the usual seasonal ebbs and flows in the data; since then, it's been working on those adjustment factors to try to take the distortion out.
- "Now that the pandemic impacts on the [unemployment insurance] claims series are clearer, modifications have been made to the outlier sets in the seasonal adjustment models," the Labor Department said Thursday morning. "These changes should provide a more accurate picture of claims levels and patterns."
By the numbers: Two weeks ago, 198,000 Americans applied for jobless benefits under the old seasonal adjustment. After applying the new adjustments, that number was 246,000.
- Last week, an estimated 228,000 people filed claims, a drop from the previous week but well above rates we've been seeing this year under the earlier adjustment methodology.
- Under the old adjustments, claims averaged 194,000 a week in the first three months of the year. That figure is now 220,000.
The takeaway: The revised numbers are still consistent with a healthy economy, but not quite the insanely hot job market implied by the earlier numbers. The claims number averaged 218,000 a week in 2019, for example, a year of robust labor market conditions.
- Hat tip to Goldman Sachs's Ronnie Walker, who anticipated the revisions in a research note published yesterday titled "Don't Be Surprised If Initial Jobless Claims Jump Tomorrow."
- Walker notes that the higher numbers, while not at alarming levels, are more consistent with the levels of layoff notices filed by companies in recent months.
