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Initial jobless claims (thousands) vs. the unemployment rate (percentage)

 

This chart shows initial jobless claims in the U.S. and the U.S. unemployment rate from 1995 to September 2023.

 

Starting in 1995, initial jobless claims are at a level of about 350,000 while the unemployment rate is near 4.5%. Both trend downward until late 2000 when they start to trend higher ahead of the 2001 recession. During the recession, claims rise from 270,000 to north of 500,000 while the unemployment rate rises from 3.9% to 6.3% in mid-2003. Then, both claims and the unemployment rate begin to decline over time and bottom out in mid-2007 at around 297,000 claims and an unemployment rate of about 4.4%. By December 2007, the U.S. economy is in recession and jobless claims soar to 665,000 and the unemployment rate surges to 10.0% by October 2009. When the recession ends, both labor metrics start to fall again and continue doing so until the March 2020 pandemic. When the pandemic hits, claims jump from about 250,000 claims to 6.1 million claims as the economy is shutdown. As the economy reopens, the unemployment rate and jobless claims both drop sharply. By late 2021, claims are down to 203,000 and the unemployment rate is around 3.5%. Both have been stable since, but the unemployment rate has ticked up to 3.8% due to a larger labor force while claims have trended down since mid-June.

 

The takeaway is that jobless claims are a leading indicator that the unemployment rate will rise, but right now, they are not pointing to a sharp weakening in the labor market.

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Top Market Takeaways Quick shot: A guiding light

Published Oct 09, 2023
Top Market Takeaways Quick Shot

A common myth is that two consecutive quarters of negative gross domestic product (GDP) mean the U.S. economy is in a recession. However, the National Bureau of Economic Research’s definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. An excellent example is the pandemic-induced 2020 recession which lasted just three months.

 

We bring this up because many investors appear to be divided on whether the U.S. economy will experience a recession in 2024. We are leaning toward the “no recession” camp, but acknowledge that a recession remains possible. So how will investors know whether a recession is indeed coming or not?

 

There are a number of leading indicators like the yield curve, which is getting a lot of attention right now due to surging bond yields, but we think investors should watch a metric that is less open to interpretation called initial jobless claims. In our opinion, it will be the guiding light moving forward as it tends to foreshadow a move higher in the U.S. unemployment rate. For those unfamiliar, initial jobless claims are released every Thursday at 8:30am and are weekly tallies of how many people filed for unemployment insurance during that week. Not only are the data timely, but they are typically very accurate depictions of labor market conditions.

 

Currently, jobless claims have been declining since mid-June and stand at just 207,000 claims. Rather than signaling a recession, claims data appear to be suggesting an economic acceleration in the third quarter, which would be consistent with popular GDP trackers like the Atlanta Fed GDPNowcast. The September employment report supports this as well with the economy adding 336,000 jobs in September and the three-month moving average coming in at 266,000 jobs – well above the pace needed to keep the unemployment rate from rising. That said, an economy that is stronger-for-longer likely means higher-for-longer for intertest rates. The risk of higher rates becoming even more restrictive for the economy remains notable. However, unless we see a steady climb in weekly jobless claims to something north of 275,000, we think it’s premature to claim that a recession is a pre-ordained outcome.

Timely claims data are not signaling an imminent recession

Line chart showing initial jobless claims in the U.S. and U.S. unemployment rate from 1995 to September 2023.
Source: Department of Labor, National Bureau of Economic Research, and J.P. Morgan U.S. Wealth Management. Data as of September 30, 2023 for jobless claims; September 2023 for the unemployment rate. Note: Shaded regions denote periods of U.S. recession.
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All market data from Bloomberg Finance L.P., 10/6/23.

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