“Initial jobless claims provide a weekly snapshot of the labor market. While known for being volatile, when put into the appropriate context initial claims can provide valuable information on the upcoming employment report” writes John Carter Braxton of the Federal Reserve Bank of Kansas City in Revisiting the Use of Initial Jobless Claims as a Labor Market Indicator.
The paper introduces a new labor market indicator, referred to as the threshold of initial jobless claims, that serves as a benchmark of comparison for the weekly reporting of initial jobless claims. The threshold incorporates multiple margins of the labor market such as hires, quits, layoffs, and labor force participation. Deviations of observed initial claims from the threshold are shown to provide accurate estimates of the upcoming change in the unemployment rate. Labor market followers can then make weekly comparisons of observed initial claims to the threshold to gain an updated understanding on the current state of the labor market.
The results of this paper show that the presented threshold is an improvement over a commonly used rule of thumb in relating initial claims to the upcoming employment report. Frequently 400 thousand initial claims in a week is cited as a labor market threshold. A downside to using a fixed threshold number is that it cannot incorporate changes in labor market dynamics. To account for these changing dynamics the presented threshold incorporates multiple margins of the labor market, such as layoffs, hires, quits, and labor force participation. Considering these margins allows the presented threshold to explain more than twice the amount of volatility in the unemployment rate compared to simply using 400 thousand as a threshold.
Adapted chosen excerpts by Job Market Monitor
Full article @ Revisiting the Use of Initial Jobless Claims as a Labor Market Indicator
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