Wednesday, October 21, 2015

Payroll Employment and Unemployment Claims

by Calculated Risk on 10/21/2015 02:18:00 PM

I've been asked again about the relationship between initial unemployment claims and monthly payroll employment. Why are claims so low, yet employment gains have slowed?

Here is a repeat of a previous answer with updated graphs. There is definitely a general relationship between payroll employment and unemployment claims as shown in the first graph.  Note that unemployment claims are graphed inverted.

Note: For smoothing, this graph use a 3-month centered average of net payroll employment, and the 4-week average of initial unemployment claims.

Payroll Employment and Unemployment Claims Click on graph for larger image.

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 260,000 initial weekly claims per week, that would mean 13 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 changes in hiring practices.

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, claims do not suggest a coming surge in employment. As the economy has improved, it is easier to find a new job - so some people who might have filed for unemployment don't because they find 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 Labor Turnover Survey).

Job Openings and Labor 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 labor 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 August there were almost 5.1 million workers hired, and about 4.9 million total separations (Layoffs, quits, and other). That is a significant amount of turnover each month.