Unemployment Claims as a Recession Indicator: May 2024 Update

Every week I post an update on new unemployment claims shortly after the BLS report is made available. Our focus is the four-week moving average of this rather volatile indicator. The financial press generally takes a fairly simplistic view of the latest number, and the market often reacts, for a few minutes or a few hours, to the initial estimate, which is always revised the following week.

One of our featured charts in the update shows the four-week moving average from the inception of this series in January 1967.

Weekly Unemployment Initial Claims

The chart above can be difficult to notice any long-term trends because of the COVID spike. This next chart has an adjusted y-axis on the chart below so that we can get a zoomed in view of the series where the COVID spike isn't as prominent. Notice the relationship between recessions and the rise in weekly unemployment claims. To no surprise, the 4-week moving average begins to rise at or before the start of a recession and reaches a relative peak at the end of a recession.

Initial Unemployment Claims with COVID outlier removed

The chart(s) above, however, give a rather distorted view of initial claims. Why? Because they are based on a raw, albeit seasonally adjusted number that doesn't take into account the substantial growth in the civilian labor force since January 1967, as illustrated in our next chart.

Civilian Labor Force

The civilian labor force in the chart above has more than doubled from 76.5 million in January 1967 to nearly 168 million today. The curve of the line, which the regression helps us visually quantify, largely reflects the employment demographics of the baby boom generation, those born between 1946 and 1964. In 1967 they were starting to turn 21. The oldest are currently eligible for full retirement benefits. Another factor in the curve is the rising participation of women in the labor force (see this commentary).