Tuesday, 19 of February of 2019

Economics. Explained.  

Initial Unemployment Claims

February 7, 2019

Initial unemployment claims fell 19 thousand in the week of February 2 to 234 thousand as the government shutdown continued to boost the level of claims.  The January 19 level of 200 thousand was the lowest since November 15, 1969.  The four-week average of claims rose 5 thousand to 225 thousand.

As one might expect there is a fairly close inverse relationship between initial unemployment claims and payroll employment.  With initial claims (the red line on the chart below, using the inverted scale on the right) at 225 thousand  we would expect monthly  payroll employment gains to exceed 300 thousand.  However, employers today are having difficulty finding qualified workers.  As a result, job gains are significantly smaller than this long-term relationship suggests and are currently about 200 thousand.

With the economy essentially at full employment, employers will have steadily increasing difficulty getting the number of workers that they need.  As a result, they might choose to offer some of their part time workers full time positions.  But this series is close to where it was going into the recession so they will have limited success in finding necessary workers from this source.

They will also have to think about hiring  some of our youth (ages 16-24 years) .  But the youth unemployment rate today is close to the lowest on record (for a series that goes back to 1970) so there are not many younger workers available for hire.

Finally, employers may also consider some workers who have been unemployed for an extended period of time.  But these workers do not seem to have the skills necessary for today’s work place.  Employers may have to offer some on-the-job training programs for  those whose skills may have gotten a bit rusty.  But even if they do, the reality is that the number of discouraged workers today is quite low — it is essentially where it was going into the recession.

The number of people receiving unemployment benefits fell 42 thousand  in the week ending January 26 to 1,736  thousand.  The 4-week moving average rose 4 thousand to 1,741 thousand.  This series hit a low of 1,635 thousand in late October.

The only way the unemployment rate can decline is if actual GDP growth exceeds potential.  Right now the economy is climbing by about 2.8%; potential growth has probably picked up from 1.8% previously to perhaps 2.3% today given faster growth in productivity.  Thus, going forward  the unemployment rate should continue to decline slowly.

Stephen Slifer

NumberNomics

Charleston, SC


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