Thursday, June 26, 2008

Claims: The Impact of Unemployment Benefits Extension

by Bill McBride on 6/26/2008 08:30:00 AM

It now appears like that Congress will extend unemployment insurance benefits from 26 weeks to 39 weeks. How will this impact the Weekly Claims data?

First, weekly claims typically get a short term bounce with an unemployment benefit extension as some workers refile for claims. This will probably add 50K per week to claims for several weeks (pushing claims solidly above 400K).

Extended benefits are not included in continued claims (there is a separate category), however continued claims will probably also get a small boost as some job seekers wait for better opportunities.

Just a couple of points to remember when claims get a boost - probably as soon as next month. Of course weekly claims are already rising, even before the extended benefits become available, indicating a weakening labor market.

Here is the current report from the Department of Labor for the week ending June 21, showing initial unemployment claims increased to 384,000, and the 4-week moving average was 378,250.

Weekly Unemployment Continued Claims Click on graph for larger image in new window.

The first graph shows the continued claims since 1989.

Continued claims increased this week to 3,139,000, an increase of 82,000 from the preceding week.

Notice that following the previous two recessions, continued claims stayed elevated for a couple of years after the official recession ended - suggesting the weakness in the labor market lingered. The same will probably be true for the current recession (probable).

Weekly Unemployment Claims The second graph shows the weekly claims and the four week moving average of weekly unemployment claims since 1989. The four week moving average has been trending upwards for the last few months, and the level is now solidly above the possible recession level (approximately 350K).