Thursday, October 22, 2009

Layoffs Are Still Slowing

Despite a small increase by 11,000 in the latest week's initial unemployment claims data reported this morning, the cooling trend in layoffs remains practically intact.

New filings for unemployment benefits (not to be confused with the total number of people actually receiving unemployment benefits) currently stand at 531,000, which is sharply below the peak of approximately 670,000 reached in the first quarter of the year. Given that this is a notoriously noisy series (probably an even worse offender, in that regard, than the famously volatile monthly nonfarm payrolls data), the only sensible way to interpret it is on a 4-week moving average basis. The latter measure was essentially unchanged at 532,000 in the latest week, sustaining the seven-month old downtrend of the series. Still, despite this decline, weekly initial claims still have a long way to go before they returned to the level prevailing just prior to the beginning of the recession, which was around 350,000.

Source: Bloomberg, Haver Analytics

There is practically no correlation between the weekly claims numbers for a certain month and the nonfarm payrolls data for that month, as the sources of the two series and methodologies used are vastly different. More importantly, though, initial claims provide us information regarding layoffs, while nonfarm payrolls are the net result of both layoffs and hiring. Both series have shown a significantly more encouraging trend in recent months. Ultimately, with the downtrend in claims continuing, a moderate acceleration in the pace of hiring cannot be too far behind.

Anthony Karydakis

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