Jobless Claims Reflect The Malaise Of The US Labor Market. Or Do They?

If the latest jobless-claims data is to be believed, the US labor market is not as strong as it seems. But how reliable are they?

Let’s unpack.

The government unveiled a new formula for seasonal adjustments on Thursday that showed initial jobless claims, or layoffs, were notably higher this year than they were earlier.

Reading: Jobless claims touch 228,000 and look worse after seasonal adjustment changes

What the new numbers show is that the number of jobless claims has remained above 200,000 for nine straight weeks, including a 14-month high of 247,000 in mid-March.

In contrast, the old seasonal-adjustment formula showed jobless claims hovering below 200,000 almost every week through the beginning of 2023. They may have been historically few in number.

For many economists, the updated jobless-claims figures are closer to the truth. After all, many large American companies announced a flurry of layoffs this year. Until this week, they simply didn’t show up in jobless claims reports.

“This increase is in line with the large number of layoffs announced by high-profile tech and retail companies since the beginning of this year,” said Stuart Hoffman, senior economic advisor at PNC Financial Services.

Yet some economists believe the historically tight labor market has suffered significant backsliding.

“The data still suggest that the job market is strong and that furloughed workers are finding it easier to find new employment,” said Matthew Martin, US economist at Oxford Economics.

Economists point to the still low number of real or unadjusted jobless claims and note that there has been only a small upward trend. See attached chart.

The monthly US jobs report, what’s more, also showed very strong job creation in the first two months of the year, he points out.

The latest monthly jobs report for March is due on Friday. Wall Street expects another strong increase to 238,000.

The employment report is unaffected by the new formula for jobless claims. The two reports are calculated separately and the government has already updated its seasonally-adjusted formula for monthly job creation.

What exactly are seasonal adjustments and why do governments use them?

The US labor market is prone to sharp seasonal fluctuations in employment. For example, many new jobs are created in November and December due to temporary hiring for the holiday-shopping season. Then most of these jobs – often a million or more – disappear in January.

Similarly, employment rises and falls at the end and beginning of each school year.

Seasonal adjustments are meant to smooth out these swings to give a better idea of ​​the underlying trends in hiring and firing.

It sounds complicated, and it is. The seasonal-adjustment formulas are updated regularly to try to make them more accurate.

Adding to the problem, in 2020 and 2021 the pandemic caused massive and sudden changes in employment to throw off the seasonal-adjustment process. The government has since been fine-tuning its process to try to make it more reliable again.

“As more post-pandemic data become available, [Labor Department] Statisticians were able to update their models, resulting in today’s revisions,” said Bill Adams, Comerica’s chief economist.

The updated formula suggests layoffs were lower than previously reported last fall, but higher in 2023.

Still, the combined increase in new jobless claims this year under the new seasonal-adjustment process is just 289,000 compared to the old formula. That’s slightly more than a week’s worth of jobless claims.

What matters most is where jobless claims go from here.

If they keep rising, it would signal more pressure on the labor market and the broader US economy. But if they continue to hover at the low 200,000 mark, that would be a sign of sustainable labor-market strength.


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