The Real Story Behind The Latest Jobs Data Show Improvement

by Louis Navellier | August 23, 2012 7:28 pm

I opened Thursday morning’s paper to the headlines: “U.S. Stocks Slide On Poor Jobs Data,” and “Stocks open lower after jobless claims rise.” Today, all the talking heads could discuss was the fact that initial claims for unemployment unexpectedly rose to the highest level in a month. Now this kind of reporting gets me fired up because while the headlines sound terrible, the details are actually much better, and this causes needless fear about the U.S. economy.

So I want to take some time to discuss jobless claims: What exactly they measure, why they matter and what the numbers mean. Above all else, I want you to be armed with the facts so the next time the media tries to make a mountain out of a molehill, you’ll know better.

What Are Initial Claims For Unemployment?

Every week, the U.S. Labor Department publishes a report that shows how many people have filed a claim for unemployment insurance for the first time.

Why Should We Keep Track of Them?

They are an indicator of the direction of the job market. Increases in jobless claims show slowing job growth; decreases in claims signal accelerating job growth.

How Do We Interpret the Numbers?

When it comes to jobless claims, the magic number is 400,000. If initial claims rise above this benchmark, the jobs market is said to be contracting. A reading below 400,000 indicates expansion. On top of this, it usually takes a jump or decline of at least 30,000 claims to signal a meaningful change in job growth. On a week-to-week basis, jobless claims are volatile, especially around the holidays, so one of the best ways to track this measure is to look at the four-week moving average.

This Week’s Jobless Claims

Keeping the above in mind, here are the facts for the past week’s jobless claims:

Initial Claims for Unemployment climbed by 4,000 to 372,000. This came slightly above economists’ estimates of a 365,000 reading. The four-week moving average increased to 368,000.

Yes, it is true that jobless claims reached a one-month high. But this followed week after week of steady declines, and the reading didn’t come anywhere close to the 400,000 benchmark. On top of this, the “surprise jump” was a measly 4,000—remember, economists don’t usually consider fluctuations of less than 30,000 to be significant. Above all else, the four-week average indicates an expanding jobs market.

Over the long term, you’ll see that the recovery is even stronger—just last week I looked at the jobless claims data over the past three years, and the trend is clear:

 The Real Story Behind The Latest Jobs Data Show Improvement

But you won’t see any of this reflected in the major headlines, and unfortunately this is somewhat par for the course. So the next time that you see a doom and gloom headline about the U.S. economy, try to keep this in mind. In the meantime, I’ll continue to watch out for red herrings like this.

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