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Unemployment Is Higher Than You Think

Posted by Jonathan Ting on February 7, 2020

On Thursday, initial jobless claims came in -13K below expectations, and on Friday, nonfarm payrolls came in 64K above expectations. These were blowout numbers pointing to a sustainably strong employment environment in the US. According to headline numbers, companies are on hiring sprees and unemployment is at an all-time low. The underlying data is telling an opposite story.

To get a true picture of the state of the jobs market, we analyze the underlying components – one being state-level reports. Different states tend to have slightly different unemployment cycles. Some states, like Iowa, tend to show unemployment cycles that precede that of the broader US, due to factors like demographics and primary industries. Looking at these early cycle states can give investors a heads up as to what’s to come.

The chart below depicts the number of states that have reported six consecutive weeks of higher initial jobless claims year-on-year. In other words, these states are claiming that there are persistently more people losing their jobs today then there was the same time last year. Currently 14 states are claiming this, In January 2019, there were only three. Our estimates point to 16 states by next week’s report and 17 the week after. Over the 30 years charted here, there were only four instances of such a surge:

  • 2007: in the lead up to the Financial Crisis followed by Federal Reserve interest rate cuts
  • 2000 in the lead up to the Dot-Com Boom followed by Federal Reserve interest rate cuts
  • 1998: following the Russian Financial Crisis followed by Federal Reserve interest rate cuts
  • 1994: against a backdrop of slowing growth followed by Federal Reserve interest rate cuts

Jobless Claims

Rate Cuts

In fact, each time 10 or more states reported persistently rising unemployment numbers, a Federal Reserve rate cut wasn’t far behind. At 14 and rising, we can probably expect to see more rate cuts this year.

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