U.S. : Explaining data noise in today’s U.S. jobless claims

Continuing and initial jobless claims are out today in the United States. Seven months after the virus struck the economy, the labor market is still not out of the woods yet with jobless claims hitting their highest level since mid-August. Continuing claims, which represent the current number of insured unemployed workers filing weekly for unemployment insurance benefits, and are reported with a two-week lag continue to decrease, reaching 10.018M vs expected 10.7M and prior 10.976M. But initial jobless claims, which are often watched closely by investors as it gives a real-time view on the state of the U.S. economy, are out higher than expected by consensus. For the week ending October 9, initial claims increased at 989.0k vs expected 825K and prior 840K. Looking into further details, initial jobless claims remain quite elevated in three of the four largest state economies*, with a figure out at 338.2k, which represents about a third of the total increase at the national level.

In contrast to what is usually the case, today’s jobless claims are unlikely to give us a good read on the real-time state of the U.S. labor market due to data noise. Like many other states, California has struggled to deal with the strong rise in jobless claims since the outbreak mostly due to outdated technology and staffing shortages. To address data backlog, California, which has consistently been one of the biggest contributors to new weekly claims, implemented a two week pause from September 20 that ended in October 4. The strong surge in initial claims in the week ending October 9 (the following week) can thus be partially explained by the fact that California returned to accepting new filings. Therefore, we should certainly refrain from overinterpreting today’s data.

Nonetheless, looking at the big picture, there are more and more signs that the labor market recovery has stalled in recent weeks as the virus spread continues, with COVID hospitalizations increasing for three weeks in a row at the national level, and companies starting to layoff employees. In recent days, there have been new reports of companies cutting thousands of jobs to face uncertainty related to the pandemic (AT&T’s Warner Media and Cineworld, just to name a few). In the meantime, in Washington, hopes for a fiscal deal before the presidential election are fading, which adds further uncertainty. So far, we see the labor market is following a K-shaped recovery, as the rest of the economy. Workers with higher education levels (those holding a bachelor’s degree and higher) have virtually fully recovered job losses since March, but those with less than a high school diploma have 18% fewer jobs. There is thus little doubt that the current crisis will further accentuate the inequality issue in the United States and may strongly influence the outcome of the U.S. presidential election.

*We don’t have available data for Florida for the week ending October 9.

Our Chart Pack to track the evolution of U.S. jobless claims: