MNI INTERVIEW: US Job Data Gap May Shrink on Claims Adjustment

U.S. jobless claims could soon become a better predictor of monthly unemployment again, as a new seasonal adjustment calculation moderates the gap created by Covid-19, a Labor Department official told MNI.

A change to adjustments applied to weekly claims data beginning Sept. 3 will bring them more in line with methods applied since March to other labor market statistics including the unemployment rate, narrowing the divergence between the series, said Patrick Carey, division chief of the Local Area Unemployment Statistics program at the Bureau of Labor Statistics.

The replacement of "multiplicative" seasonal adjustment with "additive" factors better suited for times of economic instability will be in place at least into the start of next year.

"It's always better to have a better estimate from the unemployment insurance claims to compare" to unemployment estimates, he said.

INFLATED CLAIMS

Multiplicative adjustment factors have inflated initial and continuing claims since the start of the pandemic, bumping up the level of initial claims by 22% for the week ending Aug. 22, according to Wrightson ICAP.

That has been a problem for investors who before the pandemic studied weekly claims to estimate influential job-creation figures in monthly non-farm payroll reports. It also frustrates market watchers looking for high-frequency data to figure out if the world's largest economy is in a solid jobs recovery or will be hurt by the "scarring" of longer-term unemployment that pressures Congress to offer more relief checks.

The alignment of seasonal adjustment calculations won't eliminate the gap between the weekly claims and monthly payrolls figures. A CARES Act provision allows states to suspend a requirement that unemployment insurance recipients be actively looking for work, so many jobless Americans are listed instead as being out the labor force in monthly payrolls reports.

"That might be a large factor in some of the differences that you see," Carey said.

Some states reinstated the requirement to be looking for work in July, which should shrink the gap further but won't completely correct the problem, he said.

The Labor Department may retroactively adjust previously published figures using its new procedure, but any revisions to the data won't be made public until early 2021, a Labor Department spokesperson said. Until that happens, initial and continuing claims levels reported in the coming months won't be directly comparable to figures released before September 3.