Initial claims: When a person loses their job, they file an initial claim with their state unemployment office to determine their eligibility.Continued claims: Once a worker has filed a claim and experienced at least one week of unemployment, they file continued claims to receive subsequent unemployment benefits.
The number of initial jobless claims is considered a leading economic indicator, meaning it can be used to predict economic trends. For example, in March 2020, the number of jobless claims skyrocketed as the pandemic shuttered many businesses deemed non-essential. Initial claims for the week of March 14, 2020, were just 256,000. By March 28 of that year, initial claims soared to nearly 6 million before peaking the week of April 4 at about 6.2 million.
How Jobless Claims Work
However, jobless claims don’t tell you the overall unemployment rate. Many types of people are excluded from these claims, including:
Self-employed peopleUnpaid family workers helping at a family farm or businessSome seasonal workers and employees of not-for-profit organizationsUnemployed workers who have run out of benefitsPeople who haven’t worked long enough to qualify for benefits when they lose jobsPeople who were fired from their job due to misconduct rather than economic factorsUnemployed people who are eligible for benefits but don’t file
In a typical recession, the number of jobless claims starts ticking upward several months before the recession officially begins. Initial seasonally adjusted jobless claims rose during the six-month periods leading up to each of the six recessions before the 2020 crisis. But an increase in jobless claims doesn’t necessarily mean a recession is imminent. Several short-term increases have occurred that haven’t been followed by a recession. Continued claims aren’t considered a leading indicator because they tend to fluctuate based on the economic cycle. However, they provide supporting evidence of where the U.S. economy is headed. The number of jobless claims tends to be a good predictor of personal income growth in the six months ahead. An increase in claims is associated with slower income growth, while a drop in claims is typically followed by faster income growth.
Jobless Claims vs. Unemployment Rate
The monthly jobs reports released by the U.S. Bureau of Labor Statistics provides a more complete picture of the unemployment rate than the jobs report because it goes beyond the number of workers who filed jobless claims. It uses a monthly survey of about 110,000 individuals called the Current Population Survey (CPS) to estimate the percentage of the labor force that is employed versus unemployed. The jobs report counts many people as unemployed who aren’t eligible for unemployment insurance and therefore, wouldn’t show up in jobless claims. For example, people who quit their jobs in search of other work or those who are searching for their first jobs won’t show up in jobless claims. However, these workers would be considered jobless for the purpose of determining the unemployment rate. Not everyone is considered part of the labor force, though. The labor force only includes those who are employed or unemployed but actively looking for and available for work. Excluded from the workforce are people such as retirees, people in nursing facilities or correctional institutions, and those who have given up on their job searches.
