Initial Jobless Claims
“BREAKING: U.S. unemployment aid applications up only 5,000 to 333,000 – a level that signals steady job gains“. An Associated Press Tweet August 8 2013
(Mis)interpreting Initial Jobless Claims Data -The Initial Jobless Claims Myth
Initial Jobless Claims Misinterpreted
Each week economists and journalists eagerly await the unemployment application numbers from the Employment and Training Administration of the Department of Labor for clues on the health of the job market. The number of initial jobless claims tells us how many workers filed for unemployment benefits in the prior week. A lower number indicates that fewer workers applied for benefits.
Headlines, like the one above from the Associated Press routinely appear and provide a gross misinterpretation of the initial jobless claims data. When the initial jobless claims number comes in lower we see headlines trumpeting that the data heralds job growth and is consistent with an improving job market.
The initial jobless claim tells us NOTHING about the hiring practices of employers. It merely tells us how many people who have been laid off recently applied to their state governments for unemployment insurance.
To determine how many people are getting jobs we can look to the ADP Regional Employment Report or the monthly Non Farm Payrolls Report. While these reports may be imperfect, they at least purport to measure job growth.
The Non Farms payroll number has been trending under 200,000 new jobs (mostly part time jobs) a month for at least a year, while the initial jobless claims number has been coming in around 350,000 a WEEK. Based on these numbers, we are losing nearly 1.5 million jobs a month and gaining 200,000 new jobs. If the number of new jobs exceeded the number of jobs lost one could claim jobs market improvement. Instead, we hear that the job market is improving because fewer people are losing their jobs than the week before!
The misinterpretation (or economic cheerleading) that fewer people losing their jobs and applying for unemployment benefits means the employment market is improving is surprisingly common.
While a higher number of initial unemployment claims clearly means the labor market is deteriorating, a decrease in the number of initial unemployment claims does not mean necessarily the labor market is improving. The long term unemployed have already filed for unemployment and their benefits have run out and can’t file again, but they are still unemployed (until they are unemployed long enough at such point they are not counted as unemployed).
What the initial jobless claim (+or-) number means:
-how many people in the prior week applied for unemployment insurance.
What a lower initial claims number does not mean:
-the job market is improving; or
-any one got a job-a lower number of layoffs does not mean a pick up in hiring.
What a lower initial claims might mean:
-fewer people were laid off because some who might have been laid off but were moved to part time instead; or
-after five years of tens of millions of people losing their jobs, many companies don’t have as much room to lay off as many people. there are fewer people left to fire! The lowest labor participation rate in 32 years means there are fewer people in the labor force, so there are fewer people that can be removed from it to apply for unemployment benefits.
The American Buffalo Analogy
If the above didn’t make sense here is an analogy that might make it clearer. In the final years of the systematic extermination of the American buffalo, fewer buffaloes were killed in the later years than the earlier years. This did not mean that more buffalo were being born or that the size of the herd was increasing. There were just fewer buffalo left to kill.