The original claims continue in the range; why they will give us an idea of ​​when Sahm’s rule for recessions might be triggered

– by a New Deal Democrat

Initial claims rose 2,000 last week to 216,000. The 4-week moving average fell 6,250 to 221,750. Continuing claims, one week late, fell 6,000 to 1.670 million:

To state the obvious continuing good news, the fact remains that almost no one is being laid off.

Also, the continuing good news is that claims, and in particular the 4-week moving average, remain below their year-ago level:

As long as this remains the case, we can be confident that the economy will continue to expand. I will raise a yellow warning flag if and when claims get higher year-over-year, and a recession red flag if they go up 10% year-over-year.

I’ve seen some comment that no recession can start as long as initial claims remain very low.

Historically, this is not true. There has been no “magic level” of initial claims correlating with increased or decreased levels of employment or unemployment. Sometimes 400,000 or more were needed (1980, 1981), sometimes even 250,000 or less (1970, 1974). In 2001, about 370,000 were needed; 340,000 were needed in 2007. The key is a sufficient increase from expansionary lows.

Confirmation of the above can be found indirectly through Sahm’s rule, which states that we can be sure that a recession has begun if the 3-month average unemployment rate has risen 0.5% from its previous 12-month lows . (Note that in some cases the actual onset of recession does not require such a large increase. Rather, the rule is more sufficient than necessary).

Given this rule, over 60 years initial claims lead to the unemployment rate. Here is the chart that clearly shows the lead/lag relationship from 1966 to 2019:

And here is the continuation of the graph for the last 2 years:

So the fact that initial claims hit a low last March and remain slightly higher continues to indicate that the jobless rate will hit a subsequent bottom (it did in July and September) and has also risen slightly since then.

If and when the 4-week average is 10% above its previous low on a yearly basis, we can be confident that the unemployment rate will similarly follow higher (given that a 10% increase from 3.5% unemployment is 3.85%). So the initial claims will give us a good idea of ​​when the Sahm rule might be triggered in the near future.