The Department of Labor announced this morning an increase of 11,000 new UI claims on a seasonally adjusted basis, just as we had predicted last week.
However, most of this is due to the seasonal fluctuation parameter. The variance around the "true number of new UI Claims on a seasonally adjusted basis" can be greater when a data series goes through high levels of seasonal fluctuations. That's what happened this week. The multiplicative seasonal adjustment factor went from 1.02 to 1.15, which means that we expected a drop in new UI claims of about 13% due to seasonal fluctuations alone. If new UI claims don't fall enough on a seasonally unadjusted basis, they grow on a seasonally adjusted basis. We had seen a drop in new job ads last week, which meant we were expected more UI claims. This drop in the number of job ads, in addition to the severity of the seasonal fluctuation, led to this week's "negative" report.
So, for example, CNBC interpreted the news as "indicating the labor market remained fragile despite some signs of an economic recovery." We did predict a rise in new UI Claims, but that was mostly driven by a very severe change in the seasonal adjustment factor. Had the seasonal correction factor been 1.13 instead of 1.15, seasonally adjusted UI claims would have remained unchanged.
Remember that 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
Hiring Demand fell again this week, dropping from 336,000 new online job ads to 330,000. This drop of only 6,000 new job ads is much less severe than the drop of 36,000 we saw the week before. What's more, the seasonal adjustment parameter is swinging back the other way, from 1.15 to 1.075. Combining these two factors, we predict improvements in next week's UI claims report, putting us back "on trend". (Hiring Demand dropped, but the seasonal coefficient on UI claims overcomes this).
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