This week is another light one for economic data, so let me discuss a couple of points explaining why I am cautious, but not DOOOMing. Basically, because there are a lot of asterisks.

Today let me follow up on initial jobless claims. The typical best way to look at these is YoY. If the percentage goes up by more than 10%, that’s worth a yellow caution flag. If it stays up more than 12.5% for at least two full months, that’s a red recession warning flag, although even in that case there are a few false positives.

In the last two weeks, initial jobless claims (gold in the graph below) have been higher by over 15%. Ordinarily that would be a fairly serious cause for concern. But there were several special situations at work.

First of all, Hurricane Helene caused issues in the panhandle of Florida and even more dramatically in North Carolina. As I have done in the past, my workaround is to exclude those two States and see what the YoY changes have been in the other 48 States (blue). Even using that workaround, claims have still been up over 15%. But it turns out there were labor issues in motor vehicle plants in Ohio and Michigan that also impacted the numbers. Excluding those States as well, the YoY% changes in the remaining 46 States only exceeded 10% in the last week (red):

Part of what is going on is the base problem, i.e., what was happening during October last year. Note in the above graph that the nationwide total during the week of October 14, 2023 were among the lowest all last autumn.

To further show that, here is the same graph, but showing absolute numbers as opposed to the YoY% changes:

On the far right side, we can see that Michigan and Ohio had a much bigger effect during the first week of October, and abated last week. Additionally, on the left side of the graph, which begins in September 2023, we can see that late September and October had the lowest numbers (not seasonally adjusted) at any point in the last 13 months. So the YoY comparisons are especially challenging, but will largely recede in the next few weeks.  

As I wrote above, a couple of bad weeks is not overly concerning when viewed on a historical basis. Here is the same YoY information for the 1980s through 2007:

Note that there were many times when claims YoY were higher by over 10% or even over 15%, but receded after several months without there being a recession thereafter. That’s why in forecasting I look to see if the big increase in claims persists for at least two straight months.

Finally, here is an update of my “quick and dirty” forecasting system using the YoY% change in the stock market at well as (inverted) initial claims:

It’s hard to argue that we are in a pre-recessionary environment based on a couple of poor weeks for initial claims while the stock market is higher by almost 40% YoY!

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