Most news stories on the reduction in Unemployment Insurance (UI) initial benefit claims in recent weeks, suggest that this decline indicates better unemployment news in coming months. Such speculation is unwise.
The UI initial claims trend is not a very accurate indicator of the unemployment rate trend.
- With budgets tight and competition for investments among states intense, some states have been changing their UI eligibility rules, some have been easing UI coverage requirements for certain industries, and some have been reducing UI tax rates. Such changes produce increases and decreases in initial UI claims independent of the direction the unemployment rate is taking.
- Characteristics of the newly unemployed can also have an impact. State UI eligibility rules tend to favor certain categories of workers (e.g., full time workers) and disfavor other categories (e.g., seasonal, intermittent, and part-time workers), so initial claims will rise and fall depending on which categories of workers are seeing the greatest change in unemployment rates.
Bottom line: reductions in initial UI claims in the last few weeks should be ignored for now. There are no signs that U.S. investors are about to lose their growing interest in profitable investment opportunities in Brazil, Russia, India, China, and other emerging markets. Nor are they losing their interest in expanding business relationships and partnerships in parts of the world where labor and regulatory costs are lower.