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Initial Claims for Unemployment Insurance Fall Below 400,000

Last week, I explained we care about initial claims for unemployment insurance. Initial claims track nonfarm payroll employment closely and thus give us a reading on labor market conditions. In addition, claims data are available weekly while employment data is collected on a monthly basis, so initial claims give us a more frequent view of how labor market conditions are evolving than would be available with employment data alone.

There is good news in claims this week, they have fallen below the important 400,000 threshold that divides job creation from job loss (this is a very rough estimate of the critical value):

In the week ending Dec. 25, the advance figure for seasonally adjusted initial claims was 388,000, a decrease of 34,000 from the previous week's revised figure of 422,000. The 4-week moving average was 414,000, a decrease of 12,500 from the previous week's revised average of 426,500.

Initial Claims for Unemployment

When claims fall below this amount, historically it is associated with job creation, while readings above this amount are associated with job loss. This is evident in the graph presented last week showing the association between claims and employment, repeated here for convenience:

Is this the beginning of a robust recovery?? As I explained in my last post, I don't think we have the all clear sign yet, there is still danger ahead. It's certainly too soon for policymakers to relax. We've had positive signs in the past only to have them turn negative again over time (remember "Green Shoots"?), so we must be prepared for disappointing news in coming months. In addition, there are still millions and millions of lost jobs to recover yet, and hence a very long road ahead of us even with a strong market, so labor markets could use more help even under the best imaginable conditions. But this is the best labor market news we've seen in some time -- claims are lower than at any time since July 2008 -- and let's hope the good news continues.

Update: I should add the cautionary note that seasonal adjustment procedures can be misleading near holidays, so the good news in the report comes with lots of uncertainty.

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