Here is why unemployment claims hit their lowest degree since 1969

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Recruiters speak to prospective applicants during a job fair in Leesburg, Virginia on October 21, 2021.

ANDREW CABALLERO-REYNOLDS | AFP | Getty Images

Unemployment benefit claims fell to their lowest level in more than 50 years in the week leading up to Thanksgiving – a remarkable recovery from the nosebleeds at the start of the Covid-19 pandemic.

The decline is good news for the US economy and labor market. However, the headline number hides a detail that labor experts believe is likely to make the data look overly rosy.

“I wouldn’t break my party hats just yet,” says AnnElizabeth Konkel, economist at Indeed job site.

Seasonal adjustment

Workers filed 199,000 initial applications in the week ending November 20, the U.S. Department of Labor reported on Wednesday. (Initial applications are representative of benefit applications.) These are the fewest since the week ending November 15, 1969 and a decrease of 71,000 compared to the previous week.

However, that number has a seasonal adjustment that controls discharge patterns that occur at different times of the year. (For example, layoffs in construction and agriculture generally increase in the colder months.)

The unadjusted number (which reflects the true number of claims) tells a different story. Initial unadjusted claims rose 18,000 to nearly 259,000 in the week leading up to Thanksgiving.

How can seasonally adjusted and unadjusted data move in opposite directions?

Basically, the Department of Labor expected many more workers to claim benefits than in the week before Thanksgiving. (They expected another 70,000.) This showed up as a sharp decrease in seasonally adjusted claims.

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“It’s kind of an art,” said Susan Houseman, director of research at the WE Upjohn Institute for Employment Research, of seasonal adjustment. “With that in mind, I wouldn’t make too much of this the lowest number of [unemployment] Claims since 1969. “

However, unemployment claims generally tend in a positive direction.

The level of initial unadjusted filings is roughly in line with the week leading up to Thanksgiving 2019 – a strong period for the U.S. economy, Houseman said. It’s also a dramatic reduction from around 6 million new applications per week at the height of the pandemic.

Employers hold employees on instead of firing them, according to Daniel Zhao, Senior Economist at Glassdoor.

“Ultimately, the holistic picture that all of our economic data provides is that the economy is recovering from the delta slowdown,” said Zhao, referring to the Covid-19 variant.

Future recovery?

By taking seasonal volatility into account, data adjustments generally provide a more accurate picture of economic developments.

But the exercise has proven to be tougher for federal agencies during the pandemic and is typically more difficult on holidays, according to Zhao.

Supply chain issues could also have disrupted typical seasonal work patterns in certain industries, perhaps if they caused an earlier than expected layoff, for example, he said.

“It looks like last week’s numbers in particular were partly driven by seasonal adjustment,” said Zhao of the sharp decline in seasonal claims. “I expect a recovery in claims in the coming weeks.”

In addition, according to economists, it is difficult to compare claims over decades (whether adjusted or not) because different rules apply to the recovery of benefits over time.

For example, many states made it harder to get benefits after the Great Recession, which has tended to decrease the number of people seeking help compared to previous years. However, increased awareness of the availability of services during the pandemic could lead to more people applying.