The Department of Labor announced yesterday that New Unemployment Insurance Claims fell by 12,000 on a seasonally adjusted basis.
Seasonally adjusted counts are driven by seasonally unadjusted counts and a seasonal correction factor. On a seasonally unadjusted basis, new UI Claims rose 47,000. This was driven by a drop of 40,000 new online job ads two weeks ago. Last week, new online job ads rose by only 16,000.
The correlation between Hiring Demand (new online job ads, weekly) and New Unemployment Insurance Claims has been -0.71 over the past four years. As new job ads appear 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 between the one-week lagged value of new online jobs and and new UI claims is -0.77, which supports the hypothesis that Hiring Demand is a leading indicator of published labor market data. Remember that a correlation coefficient is bounded between -1 and 1, where values of -1 or 1 imply a perfect relationship between two variables (you can usually only get a perfect correlation if you correlate a variable with itself, which isn't of much use…). So Hiring Demand closely tracks new UI Claims.
The following graph, where the UI Claims axis has been inverted to facilitate the visual interpretation of the relationship, shows how the two variables have been moving in tandem over the past 4 years:
Click chart to view full size
What can we expect for next week's report? Three factors are at play: new UI claims on a seasonally unadjusted basis, the seasonal correction factor (which produces the seasonally adjusted count), and the number of new online job ads.
The method for "estimating" the direction of next week's report has four steps:
- Assume next week's report will have the same seasonally adjusted count ("Initial Claims – SA"). The week-over-week change is zero.
- Given next week's multiplicative seasonal correction factor ("Multiplicative SF");
- What would the level of unadjusted claims ("Initial Claims – NSA") have to be to keep us steady in SA terms?
- Finally, does that concord with observed changes in the level of new online job ads?
<Implied calculations are marked like so> in the table below:
| Week End Date | New Job Ads | Change | Initial Claims – NSA | Change | Multiplicative SF | Initial Claims – SA | Change |
|---|---|---|---|---|---|---|---|
| 9/26/2009 | 385,909 | 40,512 | 445,618 | 26,417 | 1.242 | 554,000 | -10,000 |
| 10/3/2009 | 371,016 | -14,879 | 451,883 | 6,265 | 1.160 | 524,000 | -30,000 |
| 10/10/2009 | 338,933 | -32,067 | 509,730 | 57,847 | 1.020 | 520,000 | -4,000 |
| 10/17/2009 | 341,468 | 2,531 | 460,430 | -49,300 | 1.153 | 531,000 | 11,000 |
| 10/24/2009 | 381,696 | 40,252 | 494,394 | 33,964 | 1.076 | 532,000 | 1,000 |
| 10/31/2009 | 341,485 | -39,988 | 482,542 | -11,852 | 1.066 | 514,000 | -18,000 |
| 11/7/2009 | 354,721 | 15,773 | 529,446 | 46,904 | 0.949 | 502,000 | -12,000 |
| 11/14/2009 | - | - | <476,900> | <-52,546> | 1.053 | <502,000> | <0> |
In order to stay "stable in SA terms", we'd need the level of new claims NSA to drop by 52,546 to 476,900. However, we saw an increase of only 13,000 new job ads this week. Unless there's a huge spike in online job ads next week to absorb the unemployed, we can expect New Unemployment Insurance Claims to rise on seasonally adjusted basis.
| -14,879 |
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