Indicates Weak April Jobs Report Probably a Fluke

• Initial unemployment insurance claims in the week ending May 8 were at their lowest level since the beginning of the pandemic.
• More importantly, the four-week moving average of claims has been falling steadily for a few months.
• The labor market recovery is proceeding. Disappointing job growth in April was likely an anomaly.

Initial claims for unemployment insurance under regular state programs fell by 34,000, to 473,000, in the week ending May 8. This was the lowest number of initial claims since March 8, 2020, before the pandemic began to cause widespread layoffs. Claims for the previous week were revised higher by 9,000 to 507,000. This makes the week of May 8 the first week with initial claims below 500,000 since March 21, 2020.

The four-week moving average of claims, which smooths out some of the week-to-week volatility, fell to 534,000 in the week ending May 8, down by more than 28,000 from the previous week.

The four-week moving average of claims has fallen for six straight weeks and in 15 of the past 16 weeks. Layoffs are definitely slowing, although they remain high. Initial claims are still more than double the pace of around 200,000 per week before the pandemic.

The April jobs report was disappointing, with U.S. employment rising by only 266,000 over the month. But the steady decline in initial unemployment insurance claims over the past few months, as well as other UI data, suggest that the April report understated the improvement in the labor market. Other indicators, such as hiring surveys and the ADP national employment report, also suggest the Bureau of Labor Statistics’ monthly job number for April was an anomaly. A combination of supply-chain disruptions in some industries, seasonal adjustment issues, and labor supply issues weighed on job growth in April. The number is likely to be revised higher, and May job growth will be very strong.

There is some concern that extra unemployment insurance benefits of $300 per week are leading some potential workers to turn down low-paying opportunities, weighing on job growth. With some states dropping these benefits, citing the improved job market, that theory will be put to the test over the next couple of months. The extra benefits are set to expire nationally in September.

After peaking at more than 6 million in April 2020, claims fell steadily through the spring and summer of 2020 but then stabilized at between 700,000 and 900,000 between August 2020 and February 2021. But over the past few months, initial claims have moved consistently lower as economic activity has picked up thanks to vaccines and federal government fiscal stimulus.

Initial claims under the Pandemic Unemployment Assistance program rose slightly in the week ending May 8, to 104,000, from 102,000 (not seasonally adjusted). This is still the second-lowest number since the program started.

The number of unemployment beneficiaries across all programs, including pandemic-related ones, rose to 16.855 million in the week ending April 24, from 16.159 million the previous week (not seasonally adjusted). Despite the one-week increase, the number of total beneficiaries has been falling for the past couple of months. It peaked at more than 32 million in June 2020, stabilized at around 18 to 20 million in early 2021, and then started to decline in March.

The number of continuing claims under regular state unemployment insurance programs fell to 3.655 million in the week ending May 1, down 45,000 from the previous week. This number has steadily declined from a peak of more than 23 million in May 2020. Some of the improvement has come from people leaving unemployment after finding a job, although much of it has come from beneficiaries using up their eligibility and moving to pandemic-related programs. Before the pandemic, there were about 1.7 million people receiving regular state benefits a week.

There was a notable increase in initial unemployment insurance claims in Kentucky in the week ending May 1. It could be that a shortage of parts, including a global shortage of semiconductors, is weighing on auto employment in the state.

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