US initial claims jumped by 66,000 to 374,000 in the week ending October 5, 2013. This represented the highest level of claims since the end of March and the largest weekly jump since the aftermath of Hurricane Sandy in November 2012. Markets expected a modest increase to 310,000 following the 1,000 increase to an unrevised 308,000 reported in the previous week.
The US Department of Labor noted that “about half” of the overall increase in claims in the latest week was the result of California continuing to work through a backlog of filings caused by a switch in its computer system at the beginning of September. As well, 15,000 of the increase reflected the dismissal of non-federal employees due to the partial shutdown of the Federal government that began on October 1. Controlling for these factors implies an underlying increase in claims to 326,000 in the latest week.
Initial unemployment claims filed by Federal employees are reported in a separate category and do not enter directly into the seasonally adjusted claims figure. These data are also released with a one-week lag, so the effect of the partial shutdown of the Federal government will not be reported until next week.
The four-week moving average of initial claims rose to 325,000 from 305,000 in the previous week. Continuing claims in the week ending September 28, 2013 declined by 16,000 to 2,905,000.
Today’s release of initial claims suggests that the recent data have been biased downwards as a result of technical issues within the State of California. Thus, while still likely subject to some of this bias, the four-week moving average of claims reported today smoothes out the weekly distortions and provides a somewhat cleaner read of underlying labour market conditions. To that end, the 325,000 reading in this measure compares favourably to the 328,750 level reported at the end of August and points to a gradually improving employment backdrop.
In the near term, there are risks that the partial government shutdown and another contentious debate during the need to raise the debt ceiling will not only result in further non-federal employee layoffs but also weigh on business confidence and restrain hiring. We continue to assume that the shutdown will be relatively short-lived and that Congress will agree to an increase to the debt limit in order to avert a default on the government’s financial obligations. Accordingly, we expect any hit to hiring in October will be temporary and not enough to offset an underlying positive trend in job growth.
RBC