The Department of Labor announced a fall of 20,000 new Unemployment Insurance claimants, on a seasonally adjusted basis. Stock markets rose at least 1.5% this morning based on this data, even though we had predicted this drop in new UI claims in last week's analysis.
New UI Claims also fell on a seasonally unadjusted basis, falling 14,000 new claimants. This corresponds to a rise of 40,000 new online job ads the week before.
The relationship between new UI claims and online job ads is quite strong: the correlation between the two variables has been -0.70 over the past four years. As more job ads are posted online, more people can find work, and fewer must file unemployment insurance claims – hence the negative sign on the correlation coefficient. 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. The UI Claims axes has been inverted on the graph below to facilitate interpretation.
Click chart to view full size
What can we expect from next week's UI claims report? We expect little to no change in next week's report. Two factors come into play: the number of online job and the seasonal correction parameter. We saw a drop of 44,000 new online job ads this week. This means that new UI claims will rise on a seasonally unadjusted basis. The multiplicative seasonal correction factor is moving from 1.07 to 0.95, so we're being accommodated there. In order to maintain the same levels on a seasonally adjusted basis, new UI claims need to rise to 539,000, a jump of 59,500 new claims. Given historical data, this week's drop in online job ads corresponds almost exactly to this expected rise in new UI claims (every new online jobs produce -1.36 new UI claims).
All Entries