The insured rate of unemployment recently fell to 1.6%, its lowest level in 15 years.
This measure of the labour market is derived from the number of unemployment insurance claims filed, which is reported weekly by the Department of Labour. This differs from the 5.4% unemployment rate published by the Bureau of Labour Statistics, which is based on surveys.
In a note to clients Wednesday, Deutsche Bank’s Joseph LaVorgna published this chart that illustrates a high correlation between this measure and the official unemployment rate.
The four-week moving average of initial jobless claims has been in decline, and last week it fell to 266,250 — the lowest level since April 15, 2000.
“Aside from an identical four-week average during the April 2000 survey week, this was the lowest figure for any employment survey period going back to December 1973 (257k). The recent downtrend in initial claims is the main reason we expect a 275k nonfarm payroll gain when the May data are reported next Friday. To be sure, the Fed’s main labour indicator remains the U-3 unemployment rate, and on this front, the claims data are also sending a positive signal.”
LaVorgna notes that if the insured rate of unemployment keeps falling, the official U-3 unemployment rate is likely to continue to drop.
Among other things, this signals to the Fed that there’s lots of progress towards its mandate of full employment.
“Our May employment forecast calls for another one-tenth decline in the U-3 rate to 5.3%. If this turns out to be the case, and broader measures of labour market slack such as the U-6 rate improve as well, then expectations for a 2015 rate hike should firm.”