Initial Jobless Claims

A key indicator for the labor market

Since I started this newsletter at the beginning of the year, I’ve focused a lot on GDP and stocks (and the coronavirus as it messes with both). But another critical piece of the economic/financial metric puzzle is jobs.

Jobs are fundamental to both the stock market and GDP. If you don’t have jobs, you don’t have companies with stocks to trade. If you don’t have jobs, you aren’t producing any stuff that gets measured by GDP. Really, what’s the point of all this stuff we are measuring if nobody is working?

When everyone who wants a job has a job, we say times are good. So, if people are losing jobs and filing for unemployment, that’s a sign that things are not so good. Fortunately, this is tracked on a weekly basis:

When initial jobless claims go up, economists shade that region on the chart and say “yup that’s bad - let’s call that a recession.” It makes sense. If people are out of work then that’s less stuff being produced, less stuff being consumed, and less economic activity in general. Not all recessions are equal but there aren’t really any recessions where people don’t lose jobs.

There are also some fairly identifiable trends with this chart when it comes to business cycles. Times get bad, people get laid off, eventually things recover. It moves with some degree of predictability (at least from a hindsight perspective).

This chart is also probably going to get broken by the wave of jobless claims from the coronavirus. Meaning, there is an expectation that the number of claims is going to skyrocket beyond anything that’s been seen in the history of this chart due to the closure of businesses during the outbreak.

So, I’ll talk about that in the next post when data comes out. Until then, enjoy the relatively rational business cycle behavior you see here, because a jobless claims shock is coming that is probably going to be unlike anything we have seen.