Initial Jobless Claims met expectations while Continuing Jobless Claims unexpectedly rose (1710K vs 1686K consensus).
I was recently asked — given these numbers — what high-profile layoff announcements mean for the economy now and in the future. My answer — not much in the short term, and secondly, expect more layoffs as the economy slows further.
Here is my reasoning. First, initial jobless claims may be seen as an indicator of layoffs – but if so, they are still relatively small (1.7 million vs. nonfarm payrolls of about 153 million, or about 0.6%) and must Take into account two-way flow, most importantly recruitment. Second, many of these headline-grabbing announcements were in the informational and financial space.For information, it is important to realize that there has been an unprecedented boom in IT-related hiring, so layoffs at some specific companies are not surprising (see from GS). In fact, hiring in the information industry continued to grow in November (up 5.6% from its pre-pandemic peak), according to the last employment release.
There is also the question of whether initial claims correlate well with layoffs (this will vary with coverage changes, which have changed during and after the pandemic). Regarding initial claims and layoffs as measured by JOLTS, it can be seen that there is a large difference between the two series.
figure 1: Initial jobless claims, monthly adjusted weekly series average (black), and JOLTS layoffs and layoffs (tan), all at 000, seasonally adjusted. The December 2022 observation for initial claims is for December ending on December 24. Dates of peak-to-trough recessions as defined by NBER are shaded in gray. Source: DoL via FRED, BLS, NBER and author’s calculations.
While the two series were highly correlated pre-pandemic, they are not particularly highly correlated post-pandemic. Therefore, caution should be exercised when using initial claims data to extrapolate layoffs.
Both initial jobless claims and layoffs (as of October) are near record lows. For a recession, we want to see fewer hiring and more layoffs. Typically, hiring declines for several months, perhaps a year or more, before a recession begins (according to NBER BCDC dates). This is a picture from JOLTS.
figure 2: Hiring as a share of nonfarm payrolls (blue) and layoffs as a share of layoffs plus nonfarm payrolls (tan), both seasonally adjusted. Dates of peak-to-trough recessions as defined by NBER are shaded in gray. Source: DoL via FRED, BLS, NBER and author’s calculations.
While hiring is down, it’s off a spectacular peak.as in Breyers et al. (2011)in the pre-pandemic era, job growth slowed as hiring fell, well before layoffs.
What does this mean for a recession? My co-author Rashad Ahmed pointed out to me that during recessions, every sustained claim y/y growth goes up (by eyeball, about 10%). As of the week ending December 2017, we just hit -4.6% – based on essentially zero variance.
Here is a photo he provided.
resource: Rashad Ahmed, Communications, 29 December 2022.
Here are the details on the initial claim and the ongoing claim (tan line).
