One of the most closely watched economic variables is the “unemployment insurance weekly claims,” released by the Department of Labor every Thursday. According to today’s report, initial claims (seasonally adjusted) decreased by 12,000 to 502,000 for the week ending November 7. The four-week moving average measure of jobless claims fell to its lowest level in 42 weeks (see chart below) and is now 139,000 below the early April peak, adding to the mounting evidence that the recession ended sometime over the summer.
As closely as jobless claims are followed as a barometer of the labor market, there’s one major problem with the way they are interpreted, especially when they are used to compare current conditions to past recessions: there’s no adjustment for the size of the labor force.
The second chart above plots initial jobless claims (brown line) against the U.S. labor force (blue line) back to 1973, and shows that the American labor force has increased from 87 million individuals in 1975 to 154 million in 2009, a 76 percent increase. The chart also shows that jobless claims were higher during the last recession than in any of the last six recessions except the 1981-1982 recession. But without accounting for the increasing size of the U.S. labor force over time, the frequent reliance on jobless claims as a measure of labor market conditions is biased and inaccurate.
The chart below adjusts monthly jobless claims for the size of the labor force and displays jobless claims as a percent of the labor force, which tells a much different story that what often gets reported in the media. Jobless claims in October (average of 531,350) were 0.345 percent of the U.S. labor force (153,975,000), down from the peak of 0.422 percent in March 2009, and at exactly the same level as at the end of the 1990-1991 recession, and just slightly above the level at the end of the 2001 recession.
This adjusted measure of jobless claims also shows that we never came anywhere close to the levels during the recessions of the 1970s and 1980s, when jobless claims peaked at over 0.60 percent of the labor force on several occasions. To reach that percentage today, we would have to have more than 900,000 jobless claims given the size of our current labor force, which is much higher than the peak jobless claims level in April of 658,750.
Bottom Line: After adjusting for the size of the U.S. economy, jobless claims as a share of the labor force during the most recent recession were higher than the peaks during the 1990-1991 and 2001 recessions, but not anywhere close to levels reached during the recessions of the 1970s and 1980s.