The yellow flag from initial jobless claims is turning a little more orange

– by a New Deal Democrat

Initial jobless claims rose 22,000 to 264,000 last week, while the 4-week average rose 6,000 to 245,250. Continuing claims one week late rose 12,000 to 1.813 million:

Note that both measures of initial claims are at their highest levels since late 2021. Continuing claims are also at these levels, albeit slightly lower than three weeks ago.

On a year-over-year basis, initial claims are up 25.7%, the 4-week average is up 15.1% and ongoing claims are up 24.4%:

If these year-over-year comparisons hold for another month, that would be enough to raise a recession warning “red flag.” So this is a good time to reiterate that weekly data can be noisy and this week’s spike could be the start of a trend – or it could just be an aberration. Many times in the past there have been brief crossings of the 12.5% ‚Äč‚Äčannualized threshold that quickly reversed and did not signal a recession.

Here’s what the historical record of year-over-year readings looks like in the three metrics (all normalized to 0 to this week’s reading, 1 weekly claims averaged by month):

In 4 of the 7 pre-pandemic recessions, claims did not reach this level on an annualized basis until after the recession began. In 2 they reached this level 6 months or less before the recession, and in 1 (1990) 9 months before. But there were also 7 false positives: August 1971, February 1977, March 1979, February 1985, October 1995-June 1996, March 2005, and February 2007. Note, that only one of them lasted more than a month.

So this week the yellow flag caution turned a little more orange.

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