As we predicted last week based on improving levels of online job ads, the Department of Labor announced this week that new Unemployment Insurance Claims fell by 10,000 claimants. On a seasonally adjusted basis, there were 514,000 new UI claimants.
The relationship between new UI claims and the level of online job ads is quite strong: the correlation between the two has been -0.70 over the past four years. What’s more, the correlation increases to -0.76 when we examine the one week lagged value of online job ads, which supports the hypothesis that Hiring Demand leads published measures of labor market dynamics. As more job ads are posted online, more people can find work, and fewer must file for unemployment insurance – hence the negative sign on the correlation coefficient.
The UI Claims axes has been inverted on the graph below to facilitate interpretation.
Click chart to view full size
The number of new online job ads fell by 36,000 last week, settling at 332,000. The seasonal adjustment factor on new UI Claims is moving from 1.02 to 1.15, which means that we’re expecting fewer new UI Claims on a seasonally unadjusted basis. These two factors – a drop in new job ads but a rise in the multiplicative seasonal factor – combine such that we predict a worsening of new UI Claims in next week's report. (We would need the multiplicative seasonal adjustment to be smaller to accommodate more UI claims when new job ads dry up).
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