Before the pandemic, the monthly US employment report was the single most influential piece of economic data for fixed income, currency and equity markets. In the past four months, however, the often overlooked weekly initial and continuing claims data have become central. They are tricky to interpret and, currently, paint a complex picture of the US labor market.
Up until March, initial jobless claims, or the number of people making filing for unemployment insurance for the first time, hovered just above 200K per week – the lowest level since the late 1960s when the labor force was less than half its current size. Meanwhile, continuing claims, the number of people who sought help for two or more weeks, were averaging about 1.7 million -- the lowest since 1973.
Starting in the week of March 14-20, initial claims began to show big increases in first-time filers. Between March 14 and May 8, the initial claims rose to as high as 6.8 million per week and showed cumulative first-time unemployment claims of 36.7 million. Over that same period, continuing claims, which are reported with a one-week lag, showed a much smaller, but still sizable rise of 23.2 million. As it turns out, the continuing claims did a much better job of forecasting the non-farm payrolls (NFP) number. NFP showed that 22 million jobs were lost in March and April, close to the change in the number of continuing claims (Figures 1 and 2).
Since May 8, initial claims have slowed from 2.4 million in the week ending May 15, to around 1.5-1.6 million per week by mid-June. Continuing claims fell by 5.4 million, most of which (4.1 million) came during the week ending May 15 as several US states moved to reopen. Indeed, May’s employment report surprised the consensus forecast by showing a 2.5 million net gain in jobs as opposed to the expected 7.5 million loss. In fact, even the most “optimistic” economist to contribute to the consensus forecast thought that the US would lose 2.5 million jobs in May. Unemployment fell to 13.3% from 14.7%, rather than rising to 19% as expected. The forecasters had focused on initial claims when they should have focused on the week-to-week change in continuing claims.
Claims data continue to show an extremely unsettled jobs market for June. During the weeks ending June 5 and June 12, initial claims came in at between 1.5 and 1.6 million each week. So, during those two weeks, over three million workers made “first time” (or at least non-consecutive) unemployment claims. Meanwhile, continuing claims data showed 317K fewer filers in the week ending June 5 and a further 767K less filers in the week ending June 12. This suggests that during those first two weeks of June, 3.1 million people lost their jobs but 4.2 million got their jobs back. So, net basis, approximately 1.1 million jobs appear to have been created.
Using the cumulative month-to-date change in the continuing claims data to forecast June NFP could be tricky. This year, since the July 4 holiday falls on a Saturday, government offices and markets will be closed on Friday July 3. As such, the monthly employment report will be released on Thursday July 2, at the same time as the weekly claims numbers.
Going into Thursday’s employment report, we do know that 1.48 million people made first time employment claims during the week ending June 19, a slight reduction from the previous two weeks. What we do not know, however, is the change in continuing claims, which lags by one additional week. The last continuing claims data that we have ends on June 12.
Looking ahead to the July employment report, due out on Friday August 7, this will be much less of a problem. The day prior to its release, Thursday August 6, the Bureau for Labor Statistics (BLS) should release initial claims for the week ending July 31 and continuing claims for the week ending July 24. That will give forecasters roughly twice as much continuing claims data when forecasting the July number as they had for the June data.
Peering even further ahead, the claims data may get trickier for the August employment report due out in early September. Expanded unemployment benefits are currently set to expire on July 31. Unless Congress extends them, we could see a sharp drop in continuing claims in August as potential claimants are removed from the system. In that case, a fall in continuing claims might not correspond to job creation.
For the moment, what the claims data show is a job market that is extremely fluid. Many workers continue to be laid off. Some of these may be people who were laid off, rehired, and then laid off again. Others may represent actual, first-time job losses. Simultaneously, at least as of the week ending June 12, an even larger number of people are being rehired or are finding new jobs. What is clear is that the US labor market, which had demonstrated extraordinary stability and employment levels pre-pandemic, remains unsettled and continues to be fluid.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company’s business strategy, and upon those who trade in its various markets. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical conditions.
View more reports from Erik Norland, Executive Director and Senior Economist of CME Group.
Capture Select Sector exposure in futures form with E-mini S&P Select Sector futures - liquid, cost-effective and capital-efficient products that track the same underlying indices as the most popular ETFs.