4 observations about the relationship between jobless claims and payroll gains

A reader asked about the relationship between initial unemployment claims and monthly payroll employment. And if claims are so low, does that mean a surge in employment gains?

There is definitely a general relationship as shown in the first graph. Note that unemployment claims are graphed inverted. For smoothing, this graph use a 3-month centered average of net payroll employment, and the 4-week average of initial unemployment claims.

A few observations:

1) Even with a “low level” of initial weekly claims, there are a large number of claims per week (and per year). If there were 300,000 initial weekly claims per week, that would mean 15 million layoffs per year! However, some of these layoffs are regular – as an example when workers are furloughed (common in some industries) they are eligible for unemployment benefits.

2) Unemployment benefits have been trending down over time. This is probably because of improved hiring.

3) Following the recession, a number of analysts pointed out that when claims dropped below 400 thousand per week, the economy would probably start adding jobs. That was pretty close, but a rough number.

4) Even though there is a general relationship, this doesn’t suggest a coming surge in employment. As the economy improves, it is easier to find a new job – so some people who might have filed for unemployment don’t because of new employment.

Each month, when I post an “employment preview”, I look at weekly claims (especially for the BLS reference week). This seems to provide a hint – sometimes.

Talking about turnover, the second graph is from JOLTS that I post each month (Job Openings and Labour Turnover Survey).

Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labour market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs – when it is below the columns, the economy is losing jobs.

In April there were over 5 million workers hired, and about 4.9 million total separations (Layoffs, quits, and other). That is a significant amount of turnover each month.

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