US unemployment claims rose solely because claims in Louisiana quadrupled. What’s going on?

This morning’s headlines report that US initial unemployment benefit claims rose last week, with some suggesting that reflects a slowing economy due to surging coronavirus cases. The headline of a Wall Street Journal article offers a typical summation: 

U.S. Unemployment Claims Rise Amid Coronavirus Surge

Initial claims for unemployment benefits increased to 742,000 last week as pandemic weighs on labor market

But closer inspection of Department of Labor data behind this morning’s headlines suggests caution is in order before assuming surging coronavirus cases are causing the latest rise in unemployment benefit claims. Those data show last week’s nationwide rise in initial unemployment claims for two separate unemployment programs is entirely explained by unusual jumps in a single state: Louisiana.

As the table below shows, initial unemployment
insurance (UI) claims in Louisiana quadrupled from 10,045 in the week ending
November 7 to 42,724 in the week ending November 14, a rise of 32,679. At the
same time, initial claims for UI nationwide increased from 725,116 to 743,460,
a rise of 18,344. That means initial claims for UI outside of Louisiana
fell by 14,335, a drop of 2.0 percent.

Recent Change in UI and PUA Initial Claims, Louisiana and All Other States

Source: Department of Labor. All data are not seasonally adjusted.

To put Louisiana’s UI claims spike in context, last week’s 32,679 jump in initial claims there has been topped only twice in the past 30 years — after Hurricane Katrina struck in 2005 and in the first week of coronavirus lockdowns this spring. The next largest increase in any other state last week was a rise of 9,303 in Massachusetts. Meanwhile, 21 states saw a decline in claims, led by a drop of 20,632 in Illinois.   

Louisiana also led the country in the rise in initial
claims last week for another unemployment benefit program — the temporary federal
Pandemic Unemployment Assistance (PUA) program. That program supports unemployed
independent contractors, gig workers, and others with such limited work
histories they don’t qualify for UI. As the table above shows, initial claims
for PUA also quadrupled in Louisiana, rising from 9,694 to 39,566, with the
29,872 increase there also entirely explaining the 23,863 increase in PUA
claims nationwide. That means PUA initial claims, like UI initial claims, fell
in the rest of country last week.

The coronavirus could well result in rising initial claims in the coming weeks, including if more states respond with renewed lockdowns. But that doesn’t seem to explain the unusual claims spikes in Louisiana. For example, the current New York Times coronavirus case tracker places Louisiana among the bottom half of states by the daily average of coronavirus cases per 100,000 people in the past week.  

What might explain the unusual claims spikes in
Louisiana? Unfortunately, one possible cause could be something we have seen
too much of this year — coordinated efforts to defraud the unemployment
benefits system.

In recent months, waves of fraud have swept unemployment benefit programs, especially the PUA program. As I noted recently, Colorado officials reported in September that more than 75 percent of PUA claims since July 18 “were determined to be fraudulent.” In Arizona, an implausible 80 percent of all 3.4 million workers statewide appeared to have applied for PUA benefits. In Guam, officials reported they recently experienced “90 percent fraud to 10 percent good claims.” California PUA cases doubled from 3.1 million to almost 7.0 million in just the two weeks in August, forcing state officials to admit that “a big part of the unusual recent rise in PUA claims is linked to fraud.”

Given that recent history, it would not surprise if fraudsters — which include international crime syndicates — have selected Louisiana as their latest target of opportunity, causing the unusual spike in initial claims there. We will learn more about that possible explanation in the coming days. But at the very least, the fact that one state explains the entire rise in national initial claims for two separate unemployment benefit programs suggests caution is in order when interpreting the meaning of this latest data for the rest of the country.