Muddied Unemployment Data

This morning’s release of the claims for unemployment assistance are difficult to use as indicators of a trend. The good news is that both initial and continuing claims totals dropped from last week, with initial claims declining to 522,000, the lowest weekly point since January.

The bad news is that this improvement probably is an illusion since the data is seasonally adjusted and normally at this time of year there is an upward spike of temporary layoffs in the auto industry as it re-tools for the next model year. The Government adjusts that spike out of the data by lowering the actual number to an adjusted figure they think is more representative of the underlying trend. There is nothing untoward about such an adjustment: all economic data is usually put through the same process.

The problem this year is that the spike in the actual figures wasn’t there because of the auto industry’s bankruptcy problems, so the downward adjustment produces an artificially low number. We will have to wait for this odd effect to wear off as we go into August before we can get a sense of what improvement, if any, there has been in the underlying data.

So treat today’s release, and any associated media stories about ‘turning the corner’, with a massive grain of salt.