EmailThe initial claims level fell for the second consecutive week, falling from 427,000 for the week ending July 2 to 405,000 for the week ending July 9. The Briefing.com consensus expected the initial claims level to decline to 410,000.
For the first time since April 15, initial claims have fallen below the 410,000 upper bound of our "Recovery Zone." Normally, this would be a sign that the labor market is beginning to strengthen and payroll growth in excess of 100,000 per month would be expected. However, the fall in claims this week was not the result of businesses laying off fewer workers. Instead, the BLS announced that biased seasonal factors accounted for a substantial portion of the decline.
Typically, auto manufacturers go through a cyclical downtime in the beginning of July as plants retool for new model year production. The Chicago PMI, however, showed that auto manufacturers are currently ramping up production after parts shortages from Japan caused plants to idle earlier than normal. As a result, auto manufacturers laid off less people than normal, causing a big statistical bias to develop and setting up for a better claims level.
When auto makers do shut down later in the summer for retooling, the opposite bias may result. More workers than normal would be laid off and the initial claims level may artificially spike.
The continuing claims level increased from 3.712 million for the week ending June 25 to 3.727 million for the week ending July 2. The consensus expected continuing claims to fall to 3.700 million.
