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We will get the very important personal income and spending updates for the government shutdown months later this morning, which should finally tell us whether or not there was a mini-recession during that time. In the meantime, let’s take our regular weekly look at jobless claims, as to which, to reiterate, there appears to have been a positive change of regime starting half a year ago - and which continued this week.  

To wit, initial claims rose 1,000 to 200,000 for the week, still among the lowest numbers in the past 50 years, The four week average declined -3,750 to 201,500, except for several weeks in 2022 and one week in 2024, the lowest number since the 1960s (tied for one week in 2019). Continuing claims also declined -26,000 to 1.849 million, the 2nd lowest number since last April. Link here.

The above graph includes the last three years, since there still appears to be unresolved post-pandemic seasonality, whereby even after adjustment, claims have risen during the first half of the year, and declined in the second half towards a nadir in January.

This issue is even more apparent in the YoY% changes, in which initial claims were down -9.9%, the four week average down -5.5%, and continuing claims down -2.1%. Link here.

Initial claims and the four week average are virtually identical to what they were two and three years ago. In other words, the issue may be a relative increase in claims one year ago. It has been suggested that this may have to do with the wildfires in Los Angeles last January - but claims only spike for one week (January 18) one year ago in California, so that does not appear to be the main explanation.

More importantly, as I’ve noted several time in the past month, initial claims have been negative YoY most weeks since the end of last June. This suggests that there is more going on: a “regime change” as I’ve called it. My best speculation, and it is only that, is that it has to do with the push for massive deportations that has been undertaken during that time. If many thousands of immigrants (including those legally here) have quit or simply stopped showing up for work, then that would mean a large decline in the number of new unemployment claims.

In any event, if the big decline in claims lasts another week or two, that will put it well beyond the range for which Holiday seasonality could be an explanation.

Finally, this is also a positive for the unemployment rate going forward for the next month or two, as shown in the graph. Link here.

The sharp decline in jobless claims since last summer’s peak strongly suggests that the 4.5% unemployment rate in December was also the peak for that number. A rate steady at 4.4% or even moving down towards 4.0% appears more likely.

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