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Things to know about initial claims data

A deeper look at initial unemployment insurance claims

Initial claims for unemployment benefits have spiked to historic levels over the past few weeks. For the week ending April 4, over 6.6 million claims were made. As of this morning, for the week ending April 11, this number is 5.2 million claims.

The initial claims series is an important economic indicator for several reasons.

  • First, it’s weekly. Many other indicators are updated much less frequently: For example, nonfarm payroll data are monthly, and gross domestic product data are quarterly.
  • Second, there’s a short collection lag. One week’s data become public information only five days after that week is complete. The number for April 4 was made available April 9, and the number for April 11 was made available today (April 16).
  • Third, because it’s based on government administrative data, it’s more reliable than statistics based on surveys.
  • Fourth and finally, it’s available not only at a national level but also at a state level. Both national and state-level series are available in this FRED release table.

Since the economic shutdown, the initial claims number has been getting even more attention from economists and media outlets. So let’s review a few details about its construction and interpretation.

The underlying data are tabulated and released by the U.S. Department of Labor from reports provided by each state’s unemployment insurance program office. The data reach back to January 1967. Data typically reported in the news have been filtered by the Department of Labor to remove “seasonal effects.” Unseasonalized data usually peak with the start of each new year, in part because many seasonal holiday jobs have come to an end. The raw, unseasonalized data are also available on FRED.

Now, a person’s claim for UI doesn’t necessarily mean that person will receive unemployment benefits, but only that they are seeking benefits. According to the U.S. Department of Labor, “An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims.”

The unemployment rate and initial UI claims are often discussed together. The unemployment rate is calculated from a different data set, which is based on monthly surveys of households. To be considered unemployed, one must not have worked in a number of weeks but must be seeking employment. Thus, one could be considered unemployed even if they had not applied for UI benefits for their current unemployment spell, perhaps because they did not have a job covered by UI insurance.

One timely question is how recent government policy, notably the CARES Act signed into law in late March, is likely to affect the initial claims numbers. There are two channels. First, the CARES Act includes the Payroll Protection Program. Through this program, banks issue loans to small businesses that are fully guaranteed by the federal government. Moreover, if the loan-receiving business uses a sufficiently large amount of its loan to pay its workers, that loan will be forgiven. As such, this part of the act should reduce the number of new claims in the coming weeks.

Second, the CARES Act expands benefits for those receiving UI by $600 per week beyond what existing state programs already provide. In some situations, unemployed individuals may receive more in UI benefits than they were earning at their previous job. An employer (not participating in the Payroll Protection Program) might feel more comfortable laying off or furloughing workers, in order to reduce costs, with the knowledge of these expanded benefits. This part of the act may increase the number of new claims. Also, the CARES Act expands the eligibility pool to include a large number of “gig workers,” independent contractors, and the self-employed who had previously not participated in state UI programs.

How this graph was created: Search for “initial claims” and click the series name. Shorten the time period shown in the graph to more clearly view the spike beginning at the March 21 data point.

Suggested by Bill Dupor.

View on FRED, series used in this post: ICSA

A good use of moving averages

Some data series are very volatile. That is, they don’t follow a smooth or step-by-step pattern. And it’s difficult to draw conclusions when new data are added to a volatile series. The weekly release of initial claims for unemployment insurance is a great example. In this and similar cases, it is useful to adopt some kind of smoothing mechanism: Here we provide a four-week moving average. Traditionally, a moving average is centered—say, the average of two periods before and two periods after. This moving average takes the last four observations, which allows you to better read trends, especially if you’re focusing on the most recent data. Of course, trends become more obvious if you look at longer spans of time. This graph shows a span of five years. Narrow or expand the sample with the slide bar to see how a moving average can help you interpret the data and avoid the pitfalls of volatility.

How this graph was created: Search for “initial claims,” select the two (seasonally adjusted) series, and add them to the graph. Finally, restrict the sample to the last 5 years, which is done by using the settings above the graph on the right.

Suggested by Christian Zimmermann

View on FRED, series used in this post: IC4WSA, ICSA


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