Home > Initial Jobless Claims Still Elevated But Declining Further

Initial Jobless Claims Still Elevated But Declining Further

August 14, 2020 By Mircea Vasiu

For the first time since the pandemic began, initial jobless claims in the United States fell below the one million mark. Do not judge by the chart below, as it includes PUA initial claims – but the trend is declining, and that is an encouraging sign. 

Still, almost a million people (963k) applied for unemployment benefits – a staggering number by all metrics. Compared with the period prior to the pandemic, the job market remains very weak, and the gradual recovery only shows the difficult road ahead and the sluggishness of the recovery.

However, some encouraging signs exist if we are to remain optimistic.

Main Takeaways After Yesterday’s Initial Jobless Claims Report

To start with, it is the first time since March that the figures dipped below 1 million. Which is a milestone, as frightening the number remains. After all, we are only five months into the crisis.

Another optimistic view is the fact that the current state of the labor market is better than the worst sum during the Great Recession. In other words, it could have been/still be far worse than what we have seen so far.

The best way to forecast unemployment in the 21st century is to search for Google trends regarding searches for unemployment benefits. Those searches decrease significantly in the last weeks, in line with the decreasing trend seen in the chart above.

Continuing claims also declined. These are people that have lost their jobs, applied for unemployment benefits, and did not find a new job in the meantime. Hence, they “continue” to apply for claims. A decline in this number as well with the initial jobless claims suggest the downtrend is healthy, and it represents a positive for the overall labor market.

If the United States economy is able to pull more consecutive weeks that follow a similar path like the one ended August 8th, it is a sign of ongoing economic recovery taking place. Remember that job data is a lagging indicator in the business cycle. In other words, when sentiment is negative, people lose hope, all headlines point to doom and gloom, investors do not look at the job market to reverse course. This is one of the last indicators to do so.

Instead, the stock market is a leading indicator. Because of the wealth effect, the stock market leads and is a better predictor of the business cycle turning.

In other words, the fact that the job market turned a corner may suggest the recovery is well underway as it started much earlier. Position your investments accordingly!