Here are the durations from the past several months. All of the short duration levels rose. Especially considering continued declines in insured unemployment, this movement seems inaccurate. Generally, these durations level off after labor market recoveries, with a continued slight drift downward, and a lot of month-to-month noise. That is almost certainly the case here. The 0-4 week category, by itself, was about 0.1% above the average from the past 6 months. The 15-26 week category had fallen to 0.90% last month, but moved back up to 0.95% this month. We could conservatively expect this to decline to 0.80% before it levels off. This month's reading was probably also nearly 0.1% above the trend for the category, although this depends partly on expectations for upcoming months.
Back in May, after the April report, I outlined a detailed forecast of how we might expect unemployment declines to play out for the rest of 2014. Here is a graph comparing that forecast to the actual August reading.
The reading for August long term unemployment came in very close to expectations - both among the very long term unemployed, who are declining at a fairly linear rate, and the regular long term unemployed, whose movement should generally mimic the 15-26 week group, with a lag. The chart shows the rise in the shorter durations. But, the real wild card here is 15-26 week durations.
I would expect this to quickly settle 0.15% lower than it came in at for August, and I would also expect this to lead to another 0.2% drop in 27+ week durations, as those better performing cohorts move into the longer durations. So, the difference between this being a trend versus noise could mean a 0.3%-0.4% difference in the rate at year's end. As in April, I believe this month mostly reflects noise, so over the next 4 months, if this month did reflect noise, trends would lead to these reductions:
|27+ Weeks, Reduction from August ST Levels||0.05%|
|27+ Weeks, Reduction from Forecast ST UE Declines||0.20%|
|27+ Weeks, Reduction from Very LT UE||0.20%|
Some of the 27+ reduction from future short term unemployment improvements would probably not develop until 2015. So, this basically puts us at 5.5% in December. However, this hinges on seeing a continued downtrend in the 15-26 week duration bin. If we don't see that downtrend, though, this still points to a 5.7% rate in December.
Flows are showing the same odd story. All the flows are showing the same general trends toward normalcy - except the Employment-to-Unemployment flow, which has been unusually high since April. The difference between the blue line and the green line is the net flow from unemployment to employment. This is at odds with the data from unemployment insurance from the past 4 months.
The next graph is a comparison of initial unemployment claims and the flow from Employment to Unemployment. These series move together pretty reliably, except the Employment Flow data is much noisier. This makes sense, since the flows data is a survey series and the initial claims data is a count.
Keep in mind that these are flows, so that deviations are additive. In the last 4 months, the unusual rise in the EtoU flow has accounted for about 0.2% of added unemployment. This flow is probably due for a sharp decline.
Maybe it's just that I said this before the April report, when unemployment was still at 6.7%, and I'm just running on a boost of testosterone from being able to pretend that I know what I'm talking about:
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.I think a lot of the same dynamics are in place. From December to March, we were pegged at 6.7% despite strong signs in other indicators, then it all came out in April, dropping to 6.3%. Now, 4 months later, we barely scratched at 6.1%, despite strong JOLTS and insurance data. We'll see how the month goes, but I suspect I'll be looking for a drop to 5.7-5.8% in September, which will set us up for a slower decline going forward from there.