Unemployment Trend Nears Tipping Point

Unemployment claims jump at this time of year as winter slowdowns in fair-weather industries (e.g., construction and agriculture) cause layoffs. Therefore, the current unemployment claims are a mixture of pandemic and seasonal unemployment.

The graph below shows the seasonal patterns, with the winter peak typically occurring in early January. Therefore, the next one or two weekly Department of Labor claims reports will contain that normally increased level.

Happily, following the highpoint, unemployment claims fall quickly. By mid-February, they even fall below the annual average as employment ramps up. These good times continue through the spring and summer (except for a 3-week period around early July when schools end).

The good news is that in 2021, that lengthy improvement period should coincide with improving pandemic-related employment conditions, thereby delivering unusually positive data.

The unemployment picture cannot be captured in one number

To understand where unemployment is now and might be headed, we need to look at where it has been. The following five graphs present the various aspects associated with the unemployment claims data. (All data is non-seasonally adjusted because the pandemic effects have overwhelmed seasonal variations.)

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Two troublesome areas

Because the negative pandemic effects are lasting longer than hoped for, large numbers of the unemployed have dropped out of the labor pool. In addition, many unemployed have moved into the longer-term categories – the areas viewed as measures of economic weakness as well as financial hardship because unemployment benefit payments reached their time limit.

(This is why the new Covid-19 relief bill, with an added eleven weeks of unemployment benefits, is especially timely.)

The data measuring these two areas are not in the DOL’s weekly claims reports. Instead, they are contained in the Bureau of Labor Statistics monthly “Employment Situation” report. The December report (based on mid-December surveys) will be released next week on January 8.

The bottom line: Expect “employment” to push aside “unemployment” as a search term

Unemployment remains well above its pre-pandemic level, and two troublesome areas exist. However, both seasonal trends and expected re-openings of employee-heavy businesses could move conditions significantly towards full employment.

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