By Charles Thibault on December 3, 2009 in Unemployment Insurance Claims.

The Department of Labor announced this morning another drop in the number of new UI claimants. This week, there were 5,000 fewer claims on a SA basis (seasonally adjusted). This comes after last week's impressive (or surprising) drop of 39,000 claimants.

Since new UI claims reached a peak in late March 2009, they have trended downwards 3% a month on average. Hiring Demand (the number of new online job ads) has improved at an average rate of 1% a month since then too.

Last week's report of a drop of 39,000 claimants came as a surprise. Some have suggested that the economic conditions we're in have "tricked" the seasonal adjustment factors. Bradford DeLong, for example, suggests that because there aren't as many construction workers employed now compared to historical levels, the seasonal increase in new UI claims that comes from them being laid off right before Thanksgiving didn't really happen this year.

Our data, however, confirms that last week's improvment of 39,000 UI claims was in fact "real". (The initial report was for 35,000). Over the past several years, the number of new online job ads usually drops about 24% during Thanksgiving week. This year, the drop was only 11.6%. In other words, given the seasonal patterns we've seen in our data over the past five years, the improvement in the UI Claims report make sense:

What makes us think that there's any relationship between this lower than expected drop in new online job ads and the sudden improvement in new UI claims?

There is, in fact, a close relationship between the number of online job ads and new UI claimants: the correlation between the two has been -0.71 over the past two years. What's more, the correlation between new UI Claims and the one-week lagged value of Hiring Demand is -0.78, which means that the number of online job ads leads new UI claims. (The two-week lagged value has a correlation of -0.73). The correlation coefficient is negative because as new job ads go up, UI claims go down. Analysts forecasting macroeconomic performance can gain an advantage by incorporating this data into their models.

The following graph shows the historical relationship between these two variables – the UI Claims axis has been inverted to facilitate visual interpretation.

Click chart to view full size

What can we expect in next week's report? This week marks the start of the fairly aggressive seasonal decline in the number of online job ads. Without explicitly seasonally adjusting our data, it becomes hard to do the little mental exercise we usually present here (i.e. "does the number of online job ads correspond to the expected drop in NSA UI claims?). However, given the positive trend we've seen across the board in the labor market, we can expect another positive report next week. The 4-week moving average, at the very least, will resist any slight increase in next week's report.

Source: WANTED Analytics

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