The Department of Labor’s weekly tally of initial claims for unemployment insurance has become an unreliable economic indicator, writes Axios Markets correspondent Sam Ro.
Why it matters: Initial claims data has been popular among economists, traders and forecasters because it’s published more frequently than any other major report on the economy.
Driving the news: According to Labor data released Thursday, 411,000 Americans filed initial claims last week. While this was higher than the 380,000 expected, at least one top economist warns there are issues with the data.
What they’re saying: "[F]ilings can be impacted by a range of different factors and we think the data could be particularly noisy now that some states have started reducing the programs available for benefits and more states plan to do this in the coming weeks," wrote JPMorgan economist Daniel Silver on Thursday.
- On June 12, Alaska, Iowa, Mississippi and Missouri phased out extra benefits that were added in response to the pandemic. Eight more states did the same the following week.
- According to the new report, Iowa, Mississippi and Missouri reported declines in claims from the prior week, while Alaska saw the number rise.
- But Labor itself implies that we shouldn't read too much into the changes, explicitly stating that the newest weekly claims numbers "are not directly comparable to claims reported in prior weeks."
If all that weren't enough, Maryland announced on Monday that it found 508,000 potentially fraudulent claims since May, which is massive for just one state. And this may just be scratching the surface.
The big picture: "All of these types of issues make it challenging to use the claims data to get a reliable signal about labor market conditions," Silver said in his report.
Be smart: These are just claims. And anyone can file a claim. Even people with jobs who have no chance of qualifying for payment.
- Currently, only around 36% of those filing an initial claim ultimately qualified and received a benefit payment. It was even worse last year, going as low as 20% during much of the year.
- This is far below the pre-pandemic trend of 40%-45%.
- "Many states are still having a problem with backlogs [of unprocessed claims]," Jane Oates, a former Labor Department official in the Obama administration, tells Axios’ Courtenay Brown.
What to watch: These extra UI benefits in all U.S. states will expire by Sept. 4. Maybe by then, some of these other noisy variables will have stabilized and initial claims will be useful again.