Initial claims grew by 10,000 for the week ending April 15th. The Bureau of Labor Statistics (BLS), cautions that this April payroll reference week results in data that may be less reliable because of the Easter holiday. The four week moving average fell by 4,250 to 243,000 as continuing claims were down by 49,000 to 1.98 million for the week of April 8th. The last time that continuing claims dropped below 2 million was in 2000.
Unemployment insurance claims are a count of recipients by state of benefits mandated by federal law. The key advantage of the data is that their extreme timeliness and movements over time can be used to get a grasp of potential movement in the more widely followed employment report from the BLS. Initial claims for unemployment benefits provide a proxy for layoffs, whereas continuing claims give a timely sense of the stock of unemployed workers.
Figure 1 charts SA initial claims all the way back to 1967. The current level of 244,000 is the lowest level since the December 1973 and well below the 300,000 threshold which has traditionally meant a solid economy with a high probability of sustained economic growth.
Figure 2 presents a short-term view of initial claims for unemployment insurance benefits. It is color coded to show economic impact. Red = weak economic fundamentals, Yellow = Caution zone and Green = Sustained economic growth. We are solidly in the green zone. The U3 unemployment rate stands at 4.5%, while the broader U6 is currently 8.9%.This is the first time since 2007 that the U6 rate has fallen below 9%. This indicates that there is still some slack in the economy but that it rapidly approaching full employment. Another measure of employment health is the Prime-age employment to population ratio which currently stands at 78.5%. It fell a low of 74.8% in December 2009 and reached a high of was 80.2% in March 2007. An economy returning to the 80% threshold would considered to be full employment.
At Gerdau, we keep a keen eye on the employment numbers because we have demonstrated that there is an excellent correlation between employment levels and steel consumption. High job creation and low unemployment translate to strong steel demand and vice versa.