Unexpectedly Intriguing!
November 13, 2014

A new trend for new jobless claims has become established since the end of June 2014.

Residual Distribution for Seasonally-Adjusted Initial Unemployment Insurance Claims, 15 January 2013 - Present

We believe the sustained break in oil and gasoline prices in the U.S. that began in late June 2014 accounts for what appears to be a step-change in the number of initial unemployment insurance claims being filed, as the number of new jobless claims being filed each week began to fall more steeply than it had during the previous trend.

U.S. Average Monthly Fuel Prices per Gallon, November 2007 through October 2014

To put this new trend into full context, the chart below shows each of the major primary trends we've tracked since January 2006.

Primary Trends for Seasonally-Adjusted Initial Unemployment Insurance Claims, 6 January 2006 through 1 November 2014

The chart below adjusts for the volatility in the data that is attributable to the rising or falling trends that have existed, showing the residual distribution that best describes the variation of the data about their primary trend trajectory.

Residual Distribution for Seasonally-Adjusted Initial Unemployment Insurance Claims, 6 January 2006 through 1 November 2014

Finally, the table below describes each of the major trends for new jobless claims since January 2006. For those accessing this post through a source that republishes our RSS feed, please click here to see the nicely formatted version of the table on our own site!

Timing and Events of Major Shifts in Layoffs of U.S. Employees
Period Starting Date Ending Date Likely Event(s) Triggering New Trend (Occurs 2 to 3 Weeks Prior to New Trend Taking Effect)
A 7 January 2006 22 April 2006 This period of time marks a short term event in which layoff activity briefly dipped as the U.S. housing bubble reached its peak. Builders kept their employees busy as they raced to "beat the clock" to capitalize on high housing demand and prices.
B 29 April 2006 17 November 2007 The calm before the storm. U.S. layoff activity is remarkably stable as solid economic growth is recorded during this period, even though the housing and credit bubbles have begun their deflation phase.
C 24 November 2007 26 July 2008 Federal Reserve acts to slash interest rates for the first time in 4 1/2 years as it begins to respond to the growing housing and credit crisis, which coincides with a spike in the TED spread. Negative change in future outlook for economy leads U.S. businesses to begin increasing the rate of layoffs on a small scale, as the beginning of a recession looms in the month ahead.
D 2 August 2008 21 March 2009 Oil prices spike toward inflation-adjusted all-time highs (over $140 per barrel in 2008 U.S. dollars.) Negative change in future outlook for economy leads businesses to sharply accelerate the rate of employee layoffs.
E 28 March 2009 7 November 2009 Stock market bottoms as future outlook for U.S. economy improves, as rate at which the U.S. economic situation is worsening stops increasing and begins to decelerate instead. U.S. businesses react to the positive change in their outlook by significantly slowing the pace of their layoffs, as the Chinese government announced how it would spend its massive economic stimulus effort, which stood to directly benefit U.S.-based exporters of capital goods and raw materials. By contrast, the U.S. stimulus effort that passed into law over a week earlier had no impact upon U.S. business employee retention decisions, as the measure was perceived to be excessively wasteful in generating new and sustainable economic activity.
F 14 November 2009 11 September 2010 Introduction of HR 3962 (Affordable Health Care for America Act) derails improving picture for employees of U.S. businesses, as the measure (and corresponding legislation introduced in the U.S. Senate) is likely to increase the costs to businesses of retaining employees in the future. Employers react to the negative change in their business outlook by slowing the rate of improvement in layoff activity.
G 18 September 2010 2 April 2011 Possible multiple causes. Political polling indicates Republican party could reasonably win both the U.S. House and Senate, preventing the Democratic party from being able to continue cramming unpopular and economically destructive legislation into law, bringing relief to distressed U.S. businesses. Fed Chairman Ben Bernanke announces Federal Reserve will act if economy worsens, potentially restoring some employer confidence. The White House announces there will be no big new stimulus plan, eliminating the possibility that more wasteful economic activity directed by the federal government would continue to crowd out the more effective economic activity of U.S. businesses.
H 9 April 2011 26 November 2011 Rising oil and gasoline prices exceed the critical $3.50-$3.60 per gallon range (in 2011 U.S. dollars), forcing numerous small businesses to act to reduce staff to offset rising costs in order to prevent losses. The trend ends when average motor gasoline prices in the U.S. fall back below the $3.50 level in the week between 5 November 2011 and 12 November 2011 - the corresponding improvement in business outlook shows up in the data with the next full pay cycle (2-3 weeks later, or rather, the week ending 26 November 2011!)
I 3 December 2011 11 February 2012 With average gasoline prices in the U.S. having fallen below the critical $3.50 per gallon level, employers respond to the improving business outlook by reducing the number weekly layoffs at a faster rate, as both businesses and consumers benefit from lower transporation and fuel costs, while consumers gain more disposable income. Trend I ended shortly after gasoline prices rose back above the $3.50 per gallon mark in late January 2012.
J 18 February 2012 23 June 2012 With average gasoline prices continuing to be a high levels through the spring and summer, the pace of layoffs in the U.S. steadily increased until June 2012, when the national average price of gasoline in the U.S. finally dropped back below the $3.50 per gallon mark.
K 30 June 2012 15 September 2012 Trend K began with a sudden shift downward in the number of new jobless claims as gasoline prices fell below the $3.50 per gallon mark in June 2012, and although the average price of gasoline in the U.S. has since risen back above that level, there has been no sudden upward shift in new jobless claims. Instead, the number of initial unemployment insurance benefit claim filings has been rising at a faster rate than at any time since on the onset of the 2007 recession. This increase may have in part contributed to the Fed's decision to launch QE 3.0 in September 2012 in order to arrest the development of a new recession.
L 23 September 2012 16 February 2013 A surging housing market beginning in July 2012 followed by the Fed's action to aim its QE efforts directly at the industry on 13 September 2012 helped averted a developing recession in the U.S. at the end of 2012 as it stabilized the number of new jobless claims filed each week. Still, Trend L was characterized by a having a tremendous number of outliers as compared to previous trends, primarily due to the impact of Hurricane Sandy.
M 23 February 2013 28 June 2014 Trend M began with a sudden shift downward in the number of new jobless claims beginning in mid-January 2013, which became a definitive shift by mid-February. With gasoline prices elevated at the time, our thinking is that other factors, including a boost to the housing industry from money exiting the stock market as part of the "Fiscal Cliff" crisis at the end of the year combined with the Fed's amping up of its QE program on 12 December 2012 in its attempt to avert a full recession in 2013 are responsible for the downward shift in the number of claims - monetary policy offset the fiscal drag from government spending cuts (10% of drag) and tax hikes (90% of fiscal drag). The trend is characterized by a lot of volatility, much of which may be attributed to issues with California's implementation of an "improved" system for processing new jobless claims.
N 5 July 2014 Present A rapid reduction in initial jobless claims began to take hold in July 2014 as organic growth began to return to the U.S. economy, primarily as oil and gasoline prices began to fall rapidly at that time. Average gasoline prices dropped below $3.70 per gallon (in 2014 U.S. dollars, the equivalent of $3.50 per gallon in 2011 U.S. dollars - see notes above!), thanks to increasing world supply (thanks to increased production in U.S.) and reduced demand (due to economic slowdowns in Europe and China), which contribute to an improved economic situation in the U.S. (at least, for now).

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