Understanding US Unemployment Claims Data

Every Thursday, at 8:30 AM US Eastern Time, the Bureau of Labor (BLS) releases the data on initial claims for unemployment insurance (see here or here for recent reports). In the US most employers pay a small unemployment insurance tax; in general, if a worker has worked for more than a year and loses a job through no fault of his own, the worker can apply for unemployment benefits, but not all applications will result in benefits (see here for more). To continue to receive benefits the worker must be available for work (ready and willing to accept suitable work, and make a personal and continuing effort to find work). The benefits are related to the salary the worker earned, roughly half the weekly salary for most workers.

The great advantage of these data is their timeliness: every Thursday the data for the week ended the previous Saturday (five days earlier) are released, along with revisions to the previous week’s data. In contrast, the employment report is released around three weeks after the data are collected, and most other data considerably later.

The principal disadvantage of the data is their noisiness: there are many reasons for employers to fire workers that are distinct from movements in the general economy. There are strong seasonal patterns to employment (for example, there are many retail workers hired before Christmas who are not needed shortly thereafter; large industrial employers often shut down factories for maintenance or to prepare the factory for the preparation of a new product and temporarily lay off their workers; this allows employees to try to get some money from the government when employers do not need them).

Without getting into too much detail, the BLS seasonal adjustment procedure (correcting the data for typical seasonal patterns) is a bit mysterious. The seasonal factors to adjust data for the last few years through April 2009 can be found here. In early January, the seasonal factor peaks at 173, meaning that the actual number of claims is divided by 1.73 to produce the seasonally adjusted number; in September the seasonal factor of 76 means that the actual number of claims is divided by 0.76, so that actual claims of 300,000 would be seasonally adjusted up to around 395,000. Once you factor in the complexity of four day weeks (there are around 12 national holidays plus the occasional state holiday), you can see that it is hard to put too much emphasis on a single weekly number.

For this reason, some analysts prefer to look at the four-week average of the data as a way of smoothing out some of the variability of the data. There have been a number of cases in recent years when claims were up (or down) sharply for a few weeks but then returned to the range of the previous few months.

In general, in recent years when the economy is doing well the average initial weekly claims number is around 300,000; when the economy is in recession the number is closer to 400,000. An amazing part of the U.S. economy (especially relative to some European economies) is the amount of “churn” in the job market. Consider a month when the job market is poor, and employment is down by 100,000 and weekly jobless claims are 400,000. Rough calculations would imply that 1.6 million people lost their jobs (4 weeks of 400,000) and 1.5 million people found jobs (resulting in net jobs decreasing by 100,000). So even in a bad month, over 1.5 million Americans are hired for a new job. The dynamism of the U.S. economy means that firms fire workers on a regular basis, but there are usually other firms that are hiring.

Along with initial claims the BLS also releases continuing claims data. A worker who loses his job files an initial claim for unemployment insurance once, but may continue to receive benefits for months before he finds another job. To continue to receive benefits an worker must file regular reports (see here under continued eligibility). In general, during good economic times unemployed workers will find jobs quickly and stop receiving benefits; analysts thus view a rising continuing claims number as a signal that the economy is weak. But you must be careful because there are limits for how long workers can receive benefits, generally around 26 weeks (six months); after this time the worker can no longer receive benefits, even if he has not found a job. However, during difficult economic times Congress will extend this period to a longer period (39 weeks).

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