Posted by: Josh Lehner | February 2, 2012

Job Growth and New Initial Claims

While we have updated unemployment claims activity recently (see this Dec 2011 post for more information), it has been quite a few months (18 to be precise) since we have posted this data. Similar to Okun’s Law (which defines the relationship between GDP growth and unemployment rate changes), there is a clear relationship between the number of initial unemployment insurance claims and the number of net jobs created. Obviously, if more individuals are filing claims as they are laid off, that means the number of jobs is dwindling and vice versus. The graph below is a scatter plot of this relationship in Oregon on a monthly basis since 1990. The red markers are for each month in 2011.

The pattern that emerges is most months in 2011 were close to where the trend line crosses the x-axis – that is, the current level of  initial claims in Oregon (in 2011) is right at the threshold of employment growth or employment loss. The top two red dots are for January and February 2011 when the state added 6,700 and 9,700 jobs, respectively. These two months are somewhat of historical outliers based on the long run relationship, however the last 10 months of 2011 clearly follow the historical pattern. The fact that initial claims averaged 8,450 over the last 10 months of the year, it should come as no surprise that the average month saw an increase of only 140 jobs.

Summary: Given the level of claims in 2011, the lackluster job growth should be no surprise and the data confirm this. In fact, job growth was actually somewhat stronger than expected given the level of claims. Expectations are for claims to continue to moderate, contributing to an improving labor market in 2012.

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