It's hard to know what kind of movement we will see in the unemployment rate this month, after such a sharp decline last month from 6.7% down to 6.3%. Unemployment insurance claims continue to signal optimism. Here are the weekly figures in initial and continued claims:
The second graph is my comparison of continued claims to the unemployment rate. As with last month, there are two trends working in the favor of good news. One is that continued claims have been declining dramatically, which should coincide over time with a general decline in unemployment. The other trend is the convergence we should expect to see between the actual unemployment rate and the unemployment rate we have historically seen relative to the insured unemployment rate.
Of course, there is a lot of noise, month to month, with all of these indicators, but the trends look positive. I believe that the divergence from historical unemployment levels was related to the generous level of Emergency Unemployment Insurance (EUI), which ended at the end of 2013.
The new level of continued claims would correspond to an unemployment rate of 6.1% without any additional convergence to the historical unemployment level. (edit: this estimated May level is the last point on the blue series in the graph.) If the end of EUI is creating a new trend with a more steeply declining unemployment rate, then this month could see another gap down, with an expected range of, say, 5.9% to 6.3%. The decline in continued claims may be a result of generally faster unemployment exit rates across unemployment durations, related to the end of EUI. If that is the case, then we should expect there to be a convergence to historical trends along with the decline in UI, since there should also be an increase in unemployment exit rates for unemployment of durations slightly over 26 weeks, in addition to the decline in unemployed workers who are still eligible for regular UI. So far, however, there appears to be a population of very long term unemployed whose exit rates remain very slow and, lacking a change in their own trend of employment behavior, will slow some of the convergence to historical levels until well into 2015.
If I am wrong about this new trend, and last month was mostly a noise event, we might be looking at an expected range of more like 6.1% to 6.5% in May.