Thursday, May 22, 2008

Unemployment and Recession: initial claims vs. continuing claims

Today's initial unemployment claim came out with a benign number: 365k, well below the historical average required for recession: 375k-400k. So what's going on? Are we not in recession?

Barry Ritholtz thinks we may need to shift our focus to the continuing claims and he presented a convincing graph to show that we are already in recession.

"Observe the CUIC (continuing unemployment insurance claims), YoY, 4 Week MA:
Every time this has moved above 10%, we have been in a recession. If you want a margin of safety, use 15%. The current reading: 19.5% -- is deep into recessionary levels -- despite INITIAL CLAIMS being below 400k".

(click to enlarge)