Meanwhile, the 4-week moving average, which removes week-to-week volatility, went down by 2,250 thousand to 243,750.
The current volume of initial weekly jobless claims is historically thin. Since 1973, we have been lower than 233,000 only once, which was in February of this year, when we hit 227,000. In May of this year, we also hit 233,000 once, meaning, we have been at 233,000 or lower only three times in 44 years, and last week was one of those times.
With respect to forecasting future employment numbers from here, the key consideration now is whether another step down is possible in the weekly number, and the question of when cyclical forces reverse our current trend and start producing increasing numbers of weekly claims.
History can provide some insight and context. Our current trending closely mimics the historically low and consistent trend we saw in the early 1970’s. In July of 1972, we hit 350k initial claims, and then we dropped into a range between 220k and 300k for a full 18 months. We next broke above 300k in December of 1973, and then soon climbed above 500k before the end of 1974. As for our current historic streak, we have been under 300k claims for 125 straight weeks, a feat last accomplished 50 years ago in the late 1960’s/early 1970’s when the measurement was first begun.
Based on historical data, our bias is that a level of 230k represents bottom, and what should be considered the theoretical limit on how low initial weekly claims can go. The key consideration is how long we remain at this level, how soon we begin to shift directionally, and how steep that climb is. Another consideration is what the risk is for a one-time surprise in the number on either side.
A close examination of the late July period reveals a slight decrease in the four-week moving average of initial claims over three of the last four years. With last week’s decrease we continued that trend this year. There ae also rarely large swings this time of year historically. The seasonal data is supportive of a hypothesis that would suggest near term continuation of current levels.
The month of July is highlighted in green below to show the week to week trend each year.
Currently, the 12-week moving average is 241,000. Several econometric models tuned to current economic conditions and built with historical cyclical expectations provide additional guidance to supplement an outlook.
An exponential smoothing tuned to historical patterns and volatility as well as current conditions provides guidance towards a level of 239,000 before returning to a level north of 250,000 In four weeks.
A Monte Carlo simulation model, which runs 100,000 simulations and is trained on all historical jobless claim data and tuned to the current economic environment, provides midpoint guidance in the upper 230k’s, with 240k being the most frequent result by a slim margin, but with greater volume below 240k than above.
It is clear that the data tilts under 240k when viewed on a density plot designed to show the overall direction most simulation results are headed and where they congregate.
Directionally, our current bias is for a potential number slightly under 240k this week with a gradual ramp back to 250k over the month of August, with a return to more normal levels over the next 12-24 months.