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Initial unemployment claims and 4-week average of initial claims

As charts go. That’s rather boring.

OK, claims unexpectedly jumped to 231,000 vs a Bloomberg Econoday consensus of 212,000. But 231,000 is a routine number.

The reaction, not the headline number, is much more important.

The Wall Street Journal comments Stock Market Today: Jobs Data Collides With Tech Selloff, Nasdaq Falls

Bitcoin sinks, AI spending weighs on Alphabet and investors weigh signs of labor-market weakness.

Q: Is that headline even correct?
A: I don’t know and nobody else does either.

However, I do stand by bonds. Weakening jobs is definitely good for bonds.

Bond Market Reaction

• 5-Year Yield Down 8 Basis Points to 3.75 Percent
• 10-Year Yield Down 7 Basis Points to 4.21 Percent
• 30-Year Long Bond Yield Down 6 Basis Points to 4.86 Percent

Continued Claims Continue Downtrend

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Continued unemployment claims and 4-week average of continued claims

Initial unemployment claims become continued claims after one week. But numbers can drop if more people find work than go unemployed.

Q: Is that what is happening?
A: No!

Continued claims also drop if people expire all of their unemployment benefits. And that is what’s happening.

Continued Claims, 15⁺ and 27⁺ Weeks Unemployed

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Continued Claims, 15⁺ and 27⁺ Weeks Unemployed monthly average

Continued claims have essentially flatlined. That is very misleading because the unemployed are rapidly exhausting benefits.

Continued Claims and 27⁺ Weeks Unemployed Details Analysis

• Continued Claims Monthly Average: 1.85 million
• 27⁺ weeks unemployed: 1.95 million
• Continued Claims Plus 27⁺ Week Unemployed: 3.84 million

The numbers are much worse than they look.

Q: Why?
A: Most states offer 26 weeks of unemployment. The 3.84 million figure fails to count all of those in states that offer fewer than 26 weeks unemployment.

Five Factors Making Things Worse

1. The self-employed have no benefits and cannot file an unemployment claim.
2. Tariffs hit small businesses and the self-employed disproportionately.
3. Immigrants are hesitant to file a claim, even those who have been working here for years.
4. Illegal immigrants are highly unlikely to respond to BLS phone calls regarding unemployment. This means the unemployment level itself is undercounted.
5. Twelve states have a maximum of 21 weeks of benefits. Seven states including Florida offer 16 weeks of benefits or less. Once someone maxes out benefits, they drop off continued claims counts.

At a minimum, continued claims are logically undercounted by a minimum of 2 million. That is the number of of 27⁺ week unemployed, plus everyone in point #5 above.

What’s Happening Synopsis

Initial claims have been reasonably steady. But once out of a job, it is very difficult for a person to find one.

History suggests that once someone hit 15 weeks unemployment, they are stuck and will eventually get to 27 weeks and fall off claims.

In 12 states, people lose their unemployment benefits at a maximum of 21 weeks. So, my chart understates the problem.

Anyone claiming a reasonable or strong jobs market based off continued claims does not understand what’s going on.

What we don’t know is whether that jump in initial claims is the start of a strengthening trend. If, so, things will get very nasty quickly.

Final Thoughts

Despite the modest improvement in bond yields, the bond market seems torn between inflation and disinflation.

Yields remain at near the upper ends of their range. Jobs are very supportive of falling yields, but deficits, health care, the dollar, and tax cuts are not.

We do not know if this setup resolves in stagflation or disinflation. That is the nature of what I have been discussing for months.

For further discussion, click on some of the links below.

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