Unexpectedly Intriguing!
April 6, 2015

New jobless claims, or rather, the weekly tally of seasonally-adjusted initial unemployment insurance claims that are filed by those who have recently been laid off from their jobs, are an important economic indicator that provides a real-time look at the state of the nation's employment situation.

We've been tracking the seasonally-adjusted new jobless claims data for quite some time now, since the data really lends itself to standard statistical analysis. Our first chart below shows each of the primary trends we've documented in the data since January 2006, along with the statistical control chart-style indicators of the amount of variation in the data:

Primary Trends in Seasonally-Adjusted Initial Unemployment Insurance Claims, 7 January 2006 - 28 March 2015

Because a major contributor to the amount of variation we observe in each of these trends is actually caused by the trends themselves, we can refine this analysis by focusing on the residual distribution of the variation with respect to each of the observed trends - basically, taking the fact that the number of new jobless claims were rising or falling into account. Our next chart shows our results after we do that accounting.

Residual Distribution of Seasonally-Adjusted Initial Unemployment Insurance Claims, 7 January 2006 - 28 March 2015

If we've correctly described the primary trends in our basic regression analysis of the data, the resulting variation of the residuals will be normally-distributed with respect to the trends. Because of that, our statistical control chart indicators can be used to identify outliers in the data or to confirm if a new trend has taken hold.

In our residual distribution chart above, you can see outliers for two of the primary trends that we've identified - Trend H and Trend L. The outlier for Trend H relates to the late timing of spring break for public schools in New York in 2011, which wasn't accounted for in the Department of Labor's seasonal adjustments. Meanwhile, the outliers that occurred during Trend L were directly related to the disruptive impact of Hurricane Sandy upon the northeastern U.S.in 2012.

Let's next zoom in on the current trend, which became established after June 2014:

Residual Distribution of Seasonally-Adjusted Initial Unemployment Insurance Claims, 31 May 2014 - 28 March 2015

Trend N, the current trend, became established when the number of new jobless claims being filed each week suddenly stepped down as global oil prices began to fall sharply after June 2014 thanks to a combination of rising U.S. oil production from the widespread adoption of hydraulic fracturing oil extraction technologies and falling global demand stemming primarily from the decelerations of economic growth in China and Europe. As you can see in the previous charts, since that time, the national number of initial unemployment insurance claims filed each week has been consistent with the period preceding the 2008-2009 recession (the National Bureau of Economic Research sets the official beginning of that recession in December 2007, which they have identified as the peak of the previous period of economic expansion).

But falling oil prices are a two-edged sword. While beneficial for many Americans, with the major benefits to employment kicking in after gasoline prices fall below $3.30 per gallon, particularly for employment in the low-paying food and accommodation industry as consumers redirect money they had been spending on fuel toward dining out, these jobs gains are being offset at the national level by the loss of high paying oil-industry jobs in the states that have seen the greatest increase in oil production during the last several years as oil prices have fallen below the breakeven cost of production.

That outcome is confirmed when we narrow our focus to the seven states that have seen the greatest increase in oil production in recent years due to the advance of hydraulic fracturing oil extraction technologies: Colorado, North Dakota, Ohio, Oklahoma, Texas, Pennsylvania and Wyoming:

Residual Distribution of Seasonally-Adjusted Initial Unemployment Insurance Claims in Major Oil Production (Fracking) States, 31 May 2014 - 28 March 2015

We find that in these seven states, the number of new jobless claims began following a new, recessionary trend after 15 November 2015. In our final chart, we'll show the trailing four week average of the seasonally adjusted initial unemployment insurance claims filed each week in these states going back to 1 January 2000, so we can see how the new trend in these states compares with the trend observed during the two previous national recessions:

Trailing Four Week Average of Seasonally Adjusted First Time Jobless Claims in Tight Shale Oil Production States (CO, ND, OH, OK, PA, TX, WY) 1 January 2000 Through 14 March 2015

In this final chart, we've adjusted the spacing of the vertical grid lines to correspond with economic quarters in the U.S. We see that the rate of increase in the number of new jobless claims since the end of the third quarter of 2014 is consistent only with what was observed in these states during previous periods of national recession. We also observe that new recessionary trend of unemployment insurance claim filings in these seven states has accelerated sharply in the first quarter of 2015.

We also see a potential explanation for the apparent robust economic growth that was recorded in the third quarter of 2014, where falling oil prices were boosting jobs in other industries, most notably the very low-paying food and accommodation industry, but before they began negatively impacting the employment situation in these major oil producing states in the fourth quarter, as employers in the oil and gas extraction industries held off on laying off their employees and cutting back on their operations during this quarter, despite their deteriorating business conditions and outlook. This combination of factors would account for why the illusory robust economic growth of the third quarter of 2014 was not sustained.

If you only looked at the data on the national level, you would never have seen the formation of this recessionary trend that explains the U.S. economy's current state of malaise as it has entered what might best be described at this point as a hidden recession. At the very least, this data confirms that the U.S. has entered into a period of microrecession, which depending upon how the scope, severity and duration of these contractionary forces evolve, could mark the beginning of an official period of recession as might be determined by the National Bureau of Economic Research.

Data Sources

U.S. Department of Labor. Unemployment Insurance Weekly Claims Data. [Online Database]. Accessed 5 April 2015.

U.S. Department of Labor. Unemployment Insurance Weekly Claims Weekly News Releases. [Online Database]. Accessed 5 April 2015.

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