Initial Claims Fall Due to Seasonal Factors

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • 1st time claims for unemployment insurance for the week ended April 1 DROPPED 25,000 to 234,000;
  • The number of initial claims for the week ended March 21 was REVISED UP 1,000 to 259,000;
  • The smoothing four-week moving average of first time claims FELL 4,500 to 250,000 or 0.1675percent of total employment;
  • Continued claims – reported on a one-week lag – for the week ended March 25 FELL 24,000 to 2,028,000;
  • Four-week moving average of continued claims FELL 7,750 to 2,023,000.

Image result for unemployment insurance claims

With seasonal adjustment factors moving to a more favorable level, the number of first time claims for unemployment insurance for the week ended April 1, fell sharply according to the Labor Department.

Claims, according to the Labor Department “undergo regularly occurring fluctuations. These fluctuations may result from seasonal changes in weather, major holidays, the opening and closing of schools, or other similar events. Because these seasonal events follow a regular pattern each year, their influence on the level of a series can be tempered by adjusting for regular seasonal variation.”

The adjustments, the department explains, make trend and cycle developments easier to spot. The raw number of claims is divided by the adjustment factor (expressed as a percentage). If the adjustment factor is less than 100, the result of the arithmetic produces a number higher than the raw number; if it more than 100, the result is less. In other words, the adjustment factor attempts to “normalize” the reported number during period when the number of raw claims is unusually low or high.

The adjustment factor has is less than 100 – averaging 87.8 for the last three weeks – boosting the reported number of claims. Next week, the factor shoots up to 102.5 which will serve to reduce the raw number of claims. If that raw number is close to the raw number for the week ended April – claims will be seen to drop precipitously – all the way down to 203,000 when they haven’t budged.

A long-winded way of saying a lot of the fluctuation in the reported number of claims is arithmetic, not due to a seismic economic shift.

That said comparing apples with apples, claims are down sharply. The unadjusted number of first time claims in the first quarter this year has averaged 262,900 per week compared with 300,758 a year ago, a 12.5 percent drop, signaling a sharp improvement in the labor market – at least in terms of layoffs.

The drop in claims – week to week numbers notwithstanding – has a strong psychological tug on the economy, giving workers the confidence to buy more through credit cards and the like with a boost for big ticket items such as automobiles and housing.

That said, the higher level of claims has a psychological impact which could affect consumer confidence. Coming on top of the increase in the target fed funds rate, the effect of any less-than-positive economic numbers will be exaggerated.

This week’s claims numbers will have no direct impact on the March Employment Situation Report to be released Friday, which may be why the forecast for Fridays report is benign. The consensus among economists is for payrolls to have expanded 180,000 in March, down from February’s 235,000 growth and the unemployment rate to have remained at 4.7 percent with no change in the average workweek (34.4 hours) and a 0.2 percent increase in average hourly earnings, matching February.

You can hear Mark Lieberman tomorrow at 8:45 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124 and again at 12:05 pm on the Midday Briefing. You can follow him on Twitter at @foxeconomics.

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