The Real Trend for New Jobless Claims

What's wrong with using moving averages to assess trends in economic data? After all, it's a practice that is endorsed by the Federal Reserve.

That question arises today because of the WSJ's Josh Mitchell's analysis from last Friday, which suggests that initial jobless claims are trending down:

The number of Americans applying for unemployment insurance has fallen sharply since summer. The four-week moving average of first-time jobless claims inched up by 750 last week to 365,500. But the figure was below mid-June’s level of more than 387,000 claims. That is a sign that employers are laying off fewer workers and the job market could be healing.

And so it would seem, except there was a huge problem in the data for the week ending 6 October 2012, which might best be described as a California-sized hole in the data:

Last week, California reported a large drop in applications, pushing down the overall figure to the lowest since February 2008.

This week, it reported a significant increase as it processed applications delayed from the previous week. (Read More: Why Jobless Claims May Not Be as Good as Market Thinks.)

A department spokesman says the seasonally adjusted numbers "are being distorted ... by an issue of timing."

Since the Labor Department's four-week moving average for new jobless claims includes this data reporting anomaly, where one week's data was recorded more than 10% below where it might otherwise have been reported (if the California state government's Employment Development Department had properly processed and reported its claims from that week), this measure fails to provide an accurate depiction of the current trends for new jobless claims in the U.S.