US initial claims dropped 15,000 to 358,000 in the week ending October 12, 2013; however, this retraced only part of a 65,000 surge to a revised 373,000 (was 374,000) level the previous week. Markets expected a larger decline to 335,000.
The four-week moving average of initial claims rose to 336,500 from 324,750 for the previous week, thereby marking its highest level since July. Continuing claims, in the week ending October 5, declined by 43,000 to 2,859,000.
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. In the week ending October 5, the first week of the partial government shutdown, 70,068 federal employees filed initial claims for unemployment insurance benefits, which was an increase of 68,677 from the previous week and the highest level since the last government shutdown in January 1996.
Initial claims were reportedly still artificially inflated in the latest week, which also happens to coincide with the payroll employment survey week for October, because a backlog of claims created by technical issues in the State of California was still being worked through. As well, the partial shutdown of the federal government may have resulted in some temporary layoffs in the private sector, although a US Labor Department analyst reportedly noted that the effect was likely minimal in the latest week. These factors are likely to reverse going forward thereby suggesting that the level of claims will ultimately move lower in the coming weeks.
With the government shutdown over (at least for now), the long-awaited September 2013 payroll report will likely soon be scheduled for release. A downtrend in claims during September, even controlling for the technical problems in California, suggests that employment strengthened in that month. Our expectation is that payroll employment rose 185,000 in September following a 169,000 gain in August. The government shutdown could well lower measured payroll employment in October; however, we expect that any slowing will ultimately prove temporary. We expect that underlying labour market conditions will continue to improve, albeit still at a modest pace, despite the disruption from the government shutdown.
RBC