Although there is a wide range of possible readings for unemployment in any given month, I think that we might see a gap down this month. Generally, readings in economic indicators have been running along the path they have been for a while - some ups and downs, but generally positive.
As I have mentioned, the 1st quarter labor market was very strong, despite the inertia in the unemployment rate. This was probably a combination of a genuinely strong rebound in labor force participation plus statistical noise that might have pushed the unemployment rate down in late 2013 and up in 2014 1st quarter. So, I suspect that the unemployment rate in April is due for a little spring-back. In addition, there should be some more strength from weather related recovery from January and February, and employment flows coming from the end of EUI, that push down on unemployment in April.
Initial and continued unemployment claims have taken a dive this month.
While, again, the relationships here have a lot of wiggle room from month to month, they tend to trend together quite strongly. Even if unemployment claims were flat, we should expect the unemployment rate to continue to decline, because at this point in the cycle, (1) unemployment claims are getting pretty close to their cyclical lows so they will tend to level out even though the unemployment rate will tend to continue to fall, and (2) long term unemployment has been especially high (which, as I have previously indicated, we might owe largely to EUI). Here is a graph of the relationship between continued unemployment claims and the unemployment rate. I have extended this graph to April 2014, using the April 12 level of continued unemployment claims (seasonally adjusted) and an April unemployment rate of 6.4%.
I am not exactly forecasting a 6.4% reading, but, as the graph shows, this would not be an unusual movement in the UER, given the precipitous decline in UI claims. And, I would have expected a decline to 6.5 or 6.6% even if UI claims had been more level. This month could be a real shocker, IMO. And, I still think we might be tickling 6.0% or at least very low 6's by summer.
It continues to look more and more like if we categorize the labor force by duration of unemployment, the labor force is divided between two groups. 98.5% of the labor force is at full employment levels, and 1.5% of the labor force is unemployed and has been unemployed for an average of about 2 full years. That group has been declining in size by about 800,000 per year, but the average duration of unemployment for that group of excessive long-duration unemployed workers has not declined as its membership has decreased.
It will be interesting to see how quits behave in April, given that we are seeing this decline in insured unemployment. We might see an increase, which is a bullish indicator. Additionally, the direction of the economy over the next year depends a lot on that 1.5%, what their situation is, and where they end up. I don't have any certainty about that, and most of what is written seems to be what Tyler Cowen would call mood affiliation. The first 3 months of this year haven't been very enlightening about that direction. So, I am very curious about the second quarter.