Watching the U.S. labor markets, I have long been impressed that initial jobless claims are one of the best real-time indicators of the health of the overall economy. And right now, they are white hot.
When the economy is normal, there are 300k to 350k claims for unemployment insurance filed across the nation. When claims rise above 400k, it is a sure sign of recession. Often, it takes months or years into a recovery for claims to drop down below that red line again. However, it is rare for claims to drop below 300k. Very rare for that level to be sustained.
In the past 4 decades, it has happened 4 times:
- 1987 (briefly) and 1988
- 1998 – 2000
- 2005 for a few weeks
- The past nine months (Sep 2014 – June 2015)
What’s really extraordinary is when jobless claims fall below 275. That’s where they have been for the past 14 weeks. The only other time claims went below that line was in the second quarter of 2000, right before the dot-com bubble burst.
I have no idea if white-hot jobless claims trend is alarming, but I have every confidence that it means the labor market is strengthening faster than most realize. The wage inflation data may not show it yet, but I fully expect higher wages and labor force participation in the months ahead.
UPDATE: I posted in a new version of the chart, saved on the WordPress site instead of just pasted in from excel. Hope you all can see it.