Initial jobless claims for the past week were 505,000, tied with last week for the lowest since January. This brings the 4-week average down to 514,000, the lowest since November of last year and the 11th consecutive week of declines. 

Clearly, fewer people are losing their jobs.  But, 505,000 is still a large number – one consistent with a net loss of 150,000-200,000 jobs per month. And there are still 5.6 million people with continuing unemployment insurance claims, 1.8 million more than at this time last year.

I see this as reflective of an inexorable but slow decline in layoffs complicated by a lack of new jobs, which will keep unemployment elevated as far as the eye can see. So, yes, the employment market in the United States is improving. But it is improving slowly, leaving many long-time unemployed workers bereft. This is what is called structurally high unemployment – and its happening at a level much higher than even I thought likely.

Here are two nuances in the data flow.

Dichotomy in seasonal and non-seasonal data.

All of the numbers above are seasonally-adjusted data. But, I tend to think they overstate the number of job losses (this particular point puts me somewhat at odds with David Rosenberg).  My reason is simple: we are in the recovery part of the business cycle, which means that any seasonal adjustment bias will tend to elevate the numbers.

For example, when you look at year-on-year numbers, the seasonally adjusted continuing claims data show an average 1.82 million more workers filing claims. But, the non-seasonally adjusted data show 1.56 million.  That’s a pretty sizable difference. This leads me to conclude that the seasonal adjustments may be overstating continuing claims.

Year-on-year data much worse for continuing claims

On the other hand, the initial claims numbers are flat with year-ago levels. While, as I indicated above, continuing claims are greatly elevated. To me, this points to the likelihood that the unemployment rate will rise much higher. Last year, we were seeing 500,000 layoffs as well. Yet non-farm payrolls were declining at a greater rate (380K in October, almost 600K in November and almost 700K in December). I see only two ways this is possible: 1. more people are getting hired today so the net job loss is less; or 2. more likely, non-farm payrolls understate the number of job losses because of losses not tracked in small businesses.

I have not been able to reconcile these two points. I hope to see a trend which explains both points develop in the coming weeks.

Related posts:

• US Jobless claims decline in latest week
• Initial and continuing jobless claims decline
• Jobless claims in second week just over 600K
• Jobless claims fall again due to seasonality
• Jobless claims rise 30,000 from artificially low number

This excerpt comes from the blog News from 1930 which gives us a day-to-day account of what was being reported in 1930 before the worst of the Great Depression hit.

“The unemployment situation in New York is critical. Unless it is speedily met, we face a winter of hunger and distress for families whose bread-earners are without work and without funds. The great majority of family men now unemployed are asking not for charity, but for a job. In the richest city of the world, where the vast majority are at work, it is unthinkable that anyone should be permitted to starve. The Emergency Employment Committee is composed of New York business and professional men, formed at the request of experienced welfare organizations of the city. It is raising funds which will be used by these organizations to give temporary work to heads of families and to relieve distress caused by unemployment without regard to race, creed, or color.” Followed by endorsement from Pres. Hoover and appeal for funds.

Sen. Smoot denies tariff is retarding business recovery, says it has saved thousands of jobs and helped maintain wages and preserve farm purchasing power; points out only one country has increased its tariff since US adopted revisions; says question now is whether tariff is high enough, not whether it is too high.

I find the parallels to present day frightening to say the least. Let’s hope for some serious divergence.

Related posts:

• Black humor on Wall Street circa 1930
• Unemployment: U-6 data versus the Great Depression
• Food insecurity: alternative measure of economic distress skyrockets
• “That’s what happens when a town full of broke people gets a whiff of free money”
• When is the next panic?

Nouriel Roubini, writing in the New York Daily News , said on Sunday that “unemployed Americans should hunker down for more job losses” given the likelihood of a job less recovery. This was as gloomy a piece as I have seen from Roubini in the past few months. He has clearly become more downbeat about the long-term picture for the U.S. economy.

The article begins:

Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%…

…we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

This sounds dire. As a result, Roubini goes on to call on the Obama Administration to take direct action on jobs. Extending unemployment benefits is not going to cut it.  Roubini says we need:

a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

With statistics showing that the rate of long-term joblessness is at the highest since the Great Depression, Roubini joins an increasing number of economists who are calling on the Obama Administration to take the employment situation more seriously.

Paul Krugman has said that we are now in a liquidity trap. Therefore, we need to subsidize jobs and promote work sharing as Germany is doing.

I have made similar arguments about quantitative easing for the past year. Monetary policy is effectively useless – and is merely creating bubbles.

The Obama Administration is moving into deficit hawk mode at the wrong time as this will only worsen the jobs situation and lead to a double dip recession. Instead, I have called for a payroll tax cut or a job subsidy.

Randall Wray, a professor at the University of Missouri-Kansas City, has also offered a unique job solution.

All of this is urgent, as Roubini indicates:

Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.

The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession…

The damage will be extensive and severe unless bold policy action is undertaken now.

The Obama Administration is taking an ‘indirect’ approach. They do so for three reasons. First, they are afraid of being boxed in politically by taking more direct measures. They also see a need to defend their previous policy decisions.  But, Mark Thoma thinks part of the resistance to more direct measures is ideological.  In a post earlier today, he says:

Growth policy is an attempt to make the economy grow faster, and stabilization policy attempts to keep the economy as close as possible to that trend, i.e. to avoid business cycles.

When Republicans had the political microphone, they emphasized growth policy (because it allowed them to argue for what they really wanted, lower taxes, growth policy was simply the vehicle that allowed them to get there), and this was supported by academic work from people such as Robert Lucas who claimed that, from a welfare perspective, stabilization was of second order concern, growth policy was where policymakers should focus their effort if they wanted to enhance welfare. Summers’ remarks reflect this type of thinking.

The Obama Administration’s approach of focusing on deficit reduction without enough direct job measures is sure to keep unemployment elevated. In looking at the politics of economics I said recently:

I see jobs as the first area for Obama to attack. The question is whether he does this directly via some modified private-sector controlled W.P.A.-type program or indirectly via something like a payroll tax cut. After jobs comes foreclosure. Personal income and taxes are the least important area going forward (especially as any tax cuts will either increase deficit spending or have to be made up by tax increases elsewhere).

The Obama Administration is doing the opposite. They seem to have received the ‘deficit reduction comes first takeaway’ from recent state elections in Virginia, New Jersey, and New York instead of the ‘jobs come first takeaway.’ That is bad news for Democrats and it is also bad news for the hopes of a sustained recovery.

Source

The worst is yet to come: Unemployed Americans should hunker down for more job losses – Nouriel Roubini, NY Daily News
Job Losses Mount, Enduring and Deep – Floyd Norris, NY Times (the long-term unemployment image is also from this story)

Related posts:

• Comprehensive unemployment rate is 17.5%
• 467,000 jobs lost in the U.S. in June 2009
• 651,000 jobs lost but unemployment rate at 8.1% in U.S.
• 10.2% unemployment, 190,000 jobs lost
• Unemployment rate to 9.7%, 216,000 jobs lost

The latest number on unemployment claims shows a seasonally-adjusted 502,000 people applied for unemployment insurance last week, bringing the more meaningful 4-week average down to 519,750, the lowest since late November 2008. That is a good thing because it shows the labor market is improving.

Nevertheless, 500,000 initial claims in an environment of reduced hiring is still consistent with the loss of 200,000 jobs monthly.  We really need to see this number hit 450-475,000 before non-farm payrolls increase.

Of course, seasonal adjustments are a big factor here going into the holiday season.  Actual claims were 529,446, which is up nearly 50,000 from the prior week. The pre-New Year’s seasonal adjustment peak comes in early December (140% adjustment down) followed by another peak in early January (up to 180% downward adjustment).  If we see smaller spikes in these weeks (last January hit a peak of 956,791 actual claims), then this could be a harbinger of better to come in Q1.

Source

Unemployment Insurance Weekly Claims Report – U.S. Department of Labor

Related posts:

• A sustainable recovery with 530,000 weekly claims?
• Better last claims report before employment number
• Unemployment claims falling faster than in half of past recessions
• Jobless claims stuck near 530,000, point to structurally high unemployment
• U.S. initial jobless claims fall 21,000 to 554,000

L. Randall Wray has a post up at New Deal 2.0 which puts forward an idea which is pretty innovative. I would label it a private sector replacement for unemployment insurance. It’s the kind of thinking that might bring Obama out of a policy cul-de-sac as the economy hemorrhages jobs.

Let me present an excerpted version and mention a few concerns one might have with this idea. The link to the full post is at the bottom:

The latest jobs report shows that the official unemployment took a huge jump to 10.2% –15.7 million jobless workers. If we add to those numbers involuntary part-time workers, plus those who have given up looking for work, the unemployment rate is 17.5%. Even that seriously undercounts those who would be willing to work if decent jobs at decent pay were readily available–a number I put at 25 to 30 million…

I am advocating… a universal job guarantee available through the thick and thin of the business cycle. The federal government would ensure a job offer to anyone ready and willing to work, at the established program compensation level (including wages and a healthy benefits package). To keep it simple, the program wage could be set at the current federal minimum wage ($7.25 an hour), and then adjusted periodically as that is raised. The usual benefits would be provided, including vacation and sick leave, and contributions to Social Security.

Let’s call this the Job Guarantee (JG) program.

… A permanent and universal JG program should be decentralized, with projects created and administered locally–where the workers are, and for the benefit of their communities. The federal government would provide the wages, plus a portion of capital and supervisory expenses (perhaps capped at 25% of total wages paid for each JG project). Local governments and nonprofits would propose projects and cover the rest of the expenses. State unemployment offices would be converted to employment offices, helping to match workers and projects.

Project proposals would be submitted to regional councils and, if approved, would be evaluated by state councils and then by a federal council. Wages and benefits would be paid directly to workers (using Social Security numbers and direct bank deposits) to minimize fraud. Organizations submitting proposals would be prevented from replacing paid workers with JG workers. For-profit business would be excluded, because the temptation to substitute would be too great. At the same time, businesses would be protected from unfair competition because all JG projects would have to demonstrate they’d fulfill unmet public purposes. If at some future date, a for-profit firm decided to provide services that a JG project is performing, the JG project could be phased out. There is neither need nor desire for the JG program to compete with the private for-profit sector.

…JG workers will be gaining useful work experience and training, making them more appealing to other employers. When firms hire, they will recruit from the JG program, offering a slightly higher wage.

At the same time, the program’s fluctuation allows it to act as an employed “buffer stock”-or “reserve army of the employed”-helping to attenuate the business cycle while maintaining full employment without setting off a wage-price spiral. An economic boom will shrink the size of the JG program; in a recession the program will grow.

Thus, an effort like the Job Guarantee program I am proposing would act as an automatic stabilizer — a feature most would agree is desperately needed in our current rollercoaster economy.

This is definitely outside the box thinking. It is basically a decentralized counter-cyclical works program to largely replace the unemployment insurance program we presently have.

The benefits I see are that it maintains full employment by putting to work those that would be idle and collecting unemployment insurance.  We have an enormous number of unemployed people who are drawing significant social welfare payments (five million are drawing unemployment insurance according to my latest post). Why not use a lot of that same money and deploy them.

This approach also would employ a huge slew of longtime unemployed workers that have benefits expire and skills languish, making them harder to employ and increasing structural unemployment.  The job guarantee could then reduce the level of structural unemployment that results from a steep downturn (see Mark Thoma’s recent piece on structural unemployment for a cogent explanation of that issue).

In my view, full employment is compatible with free market capitalism. In this approach, a job guarantee is there for anyone who wants it. Any structural unemployment will be largely voluntary.

Here are my questions. I am going to present what I consider the standard questions using the standard terminology – not because these are the exact questions I have but because these are the questions I would anticipate. I have run these same questions by a few economists to generate some answers. I have incorporated most of their answers. But, I still would like to hear your thoughts as well.

1. Isn’t this just an attempt to expand the state i.e. be a move toward big government? Why shouldn’t we expect ‘mission creep?’ Since the idea is designed to fluctuate with changes in the economy, it seems less of a concern. Yes, this is the not-for-profit private sector. But, we would still need to flesh out the safeguards to make sure that it didn’t crowd out investment in the for-profit sector. (You should expect this program to increase the pie and expand investment in aggregate, so that certainly mitigates these concerns as well.)
2. Won’t this misallocate resources and create malinvestment?  Since it is designed to be an automatic stabilizer i.e. countercyclical, it doesn’t necessarily appear so. But, it still might create misallocations by increasing the propensity to spend excessively on infrastructure. Infrastructure spending in the U.S. is probably too low at present.  But, at some point in the future, this will be a concern. The fact that much of it can be administered in the private sector locally is important in this regard.
3. How much will this cost? How do we pay for this? As I understand the idea, it is designed to replace unemployment insurance entirely – and that means we will recoup in taxes lost output from cyclical and structural unemployment. But, as the Federal Government is paying not just wages but benefits, it does not seem to be a deficit neutral strategy in a employer-provided health-insurance world. If health insurance became detached from employers that would be less of an issue. But, that’s not going to happen. (I should also point out criminality and imprisonment associated with lack of job opportunities would be reduced, so that certainly decreases any costs – both social and monetary).

Personally, I am not especially keen on the ‘New Deal’ terminology in the original piece.  That goes to political/philosophical predisposition. So I have stripped it of that language here.

As an aside, of 1920s and 1930s Democrats, I find Al Smith, the Governor of NY and 1928 Democratic Presidential candidate, far more interesting than FDR. Smith and Roosevelt had a very antagonistic relationship in no small part due to FDR’s co-opting of all of Smith’s 1928 ideas for FDR’s 1932 run. Al Smith was a first-generation Irish Catholic who grew up poor on the lower East Side of Manhattan and owed his rise to Tammany Hall. Prejudice is a big reason he lost to Hoover in 1928. Roosevelt was a blue-blooded Harvard-educated Aristocrat who was much more palatable to early 20th-century Americans. Try “Al Smith and His America,” or better yet “Empire Statesman,” for a good read on Smith.

I suspect Wray’s idea will gain more traction if it can be examined it in a politically-neutral frame.

Economists I have talked to who have studied this idea inform me all studies indicate the proposal has a 1-2% of GDP price tag.

Right now, President Obama seems like he is banking on a recovery that will bring unemployment down. But, this may not end up being so. From a purely political perspective, Wray’s suggestion is the direction Obama should go if he wants any traction on the unemployment issue should recovery not bring unemployment down.  But, Wray’s idea also deserves more discussion irrespective of the political ramifications because it keeps a buffer stock of skilled, employed people ready to hand for the for-profit private sector to employ.

Source

Navigating the Jobs Crisis: Time for a New ‘New Deal’ Jobs Program – L. Randall Wray

Related posts:

• Jobless claims dip in most recent week
• ADP Report: 697,000 jobs gone in February
• US unemployment hits 5-year high of 6.1%
• Irish unemployment gaps up by most in 40 years
• Spain: “we need to go back to 2000 wages and prices and start again”

The Department of Labor data released this morning indicated that 512,000 people filed initial claims for unemployment insurance in the latest week.  This is down 20,000 from last week and marks the last data points we are to get on employment before tomorrows employment numbers are released.

All indications are that the number will come in around the 200,000 job loss range. Wednesday’s ADP number of –203,000 jobs is consistent with this. Stock futures rallied on the data and the Dow is up about 80 points in early trading.

Nonetheless, 512,000 weekly claims is still very high.

Source

Weekly Unemployment Claims Report – ETA Press Releases

Related posts:

• A sustainable recovery with 530,000 weekly claims?
• New unemployment claims are coming down
• U.S. initial jobless claims fall 21,000 to 554,000
• Jobless Claims: 404,000
• Jobless claims stuck near 530,000, point to structurally high unemployment

That’s what we seem to be expecting based on the huge uptick in equities since March. While stock markets have long since moved it up a gear, the employment market is stuck in neutral. The latest seasonally-adjusted jobless claims numbers came in at 530,000. The widely-followed four week average is still 526,250 and is not coming down.

These numbers are more consistent with a loss of 200,000 jobs per month than of one of declining unemployment. When you have more people losing jobs than getting them, you don’t have the pre-conditions for a sustainable recovery. The economy needs to move it up a notch or we are looking at a double dip.

Source

Weekly Unemployment Claims Report – ETA Press Releases

Related posts:

• New unemployment claims are coming down
• Better last claims report before employment number
• U.S. initial jobless claims fall 21,000 to 554,000
• Jobless Claims: 404,000
• Jobless claims stuck near 530,000, point to structurally high unemployment

Richard Bernstein has done a huge reversal in the last few months from touting low-risk stocks to high-beta ones. He has gone from a preference for consumer staples to one for consumer cyclicals (XLY). And he has gone from lugubrious doubter of a sustainable recovery to an almost V-shaped optimism. 

What is remarkable about the transformation is the dichotomy between his views and his former Merrill Lynch colleague David Rosenberg’s. The two were tied at the hip at Merrill, producing research that was out of step with the bullish consensus yet painstakingly substantiated.

Just five months ago, back in May, I caught Bernstein on Bloomberg and he was questioning whether we would get any recovery at all.  I wrote then:

Richard Bernstein asks a very good question in a wide-ranging interview with Bloomberg.  Now that the so-called green shoots are dominating the news coverage and the S&P 500 is up a massive 34% from its March lows, one might think we are due for a pretty Robust V-shaped recovery.  Is that what the future holds?

Bernstein doesn’t think so.  He thinks the recovery will be more muted than most people think.  For this recovery to have any legs Bernstein believes we need to move away from the “credit-induced” dynamic of the previous 5 to 15 years.  This necessarily means that financials will not be leaders in a sustainable bull market because we will have a lot less leverage in the system. This also means that the core earnings power in the sector is a lot less than people think. Bernstein thinks the financial sector has gotten way ahead of itself – a view I am beginning to share after today’s junk rally.

Bernstein went on to say that there was still huge overcapacity in financial services and that we needed to shed this capacity if we wanted to see a good return on investments in the sector. At the time, I was more bullish on the financial sector (although I also worried expectations were getting ahead of themselves; I am now bearish). I saw upside because the overcapacity coupled with low interest rates was an invitation to seek risk, a view that has been borne out in recent months.

As to the bailouts and the government plan, Bernstein believes that the government is attempting to keep the excess capacity in the financial sector alive.  His basic point is that bubbles create overcapacity (think tech stocks).  This is the case in finance.  The sector must shrink.  In my own, there are only two ways a sector in over-capacity can perform.  They can have poor earnings (Bernstein’s first point) or they can seek heavy risk taking and reach for yield.

Just as I am switching the other way, so too is Bernstein.  Witness the latest Bernstein appearance on CNBC last week.

It seems even the most bearish market mavens can’t fight the bullish momentum in this stock market. Wait until you find out who’s now a buyer of stocks.

Richard Bernstein, the former Merrill Lynch chief investment strategist, and one of the biggest bears we know is changing his tune.

People like me have underestimated the rebound, Bernstein says. What’s made him a believer?

You might remember the last time Bernstein was on Fast Money he told the traders – at the foundation of the stock market and the recovery is  jobs. The market can’t sustain itself unless people are brining home the bacon.

And although the unemployment rate continues to rise Bernstein is more focused on initial jobless claims which he and many others consider a leading indicator. And that number has started to decline.

In fact, when they were reported last week new jobless claims dropped to the lowest level since January. And that trend combined with low inflation likely means Americans will regain their appetite for spending.

Another way of saying that is – the economy is slowly getting better. “if you believe in the recovery this is the prime time to be a value investor.”

Bernstein added that one wants to load up on risk now if one believes in the recovery. Junky names are the best as they have more leverage to a rebound.  This is certainly the play right now (but I think it has more to do with interest rates than recovery). I had seen Bernstein saying exactly this last month, but he was not yet confident that the jobs picture had turned. Apparently, he is now and recommends going all-in, a recommendation I would view with skepticism.

Related posts:

• Bernstein: What kind of recovery are we going to get?
• Wood warns of correction, says “key variable in the West is government policy”
• David Rosenberg and Richard Bernstein to leave BOA
• Are the markets set for a pullback?
• Bill Gross: Sell equities and buy Treasuries

For the latest week’s data for jobless claims, all you need to know is that the 4-week average barely budged and remains just above the 530,000 mark, consistent with a loss of 200,000 jobs. Clearly employment continues to lag at this point in the business cycle.

The Good

• Unadjusted initial claims. Actual initial claims came in at 460,449, putting them back below 500,000 after last week’s 509,562 broke a string of ten weeks below 500K.
• Unadjusted continuing claims. This number is now at 4.89 million, the lowest since last December.
• Adjusted initial claims. The 4-week moving average SA initial claims is still falling. Now at just over 532K, it is at the lowest since Jan 17th.
• Adjusted continuing claims. The same goes for continuing claims, where the 4-week average SA number fell to 6.03 million, the lowest since April 18th.
• Change in continuing claims. 6-month and year-on-year comparisons for both NSA and SA continuing claims have been falling since May. The six-month comparisons are poised to go negative soon.

The Bad

• Change in unadjusted initial claims. The year-on-year number is up for the second week in a row, after falling every week but two since May.
• Change in adjusted initial claims. Here again, the year-on-year comparisons are going the wrong way. They are up very modestly (53,250 vs. 52,500) after falling consistently since March.

Basically, the numbers are coming down but not fast enough.  The 2nd derivative i.e. the change in claims is going the wrong way – and this is in comparison to a period when claims were leaping up post-Lehman.  I see this data point as an ominous sign.

That said, at the same time in the last recession (28 weeks after the average initial claims had peaked) in May of 2002, jobless claims had risen in March and April and were in the process of flatlining at around 400- 425,000. This lasted until September 2003, two years after jobless claims had peaked.

Is this what we should expect this go round?  Yes.  And that means the economy will have structurally high unemployment levels, putting it at risk of a recessionary lapse.

Related posts:

• Jobless claims in second week just over 600K
• U.S. jobless claims: Claims rise 62,000 to 589,000
• Initial claims under 600K, continuing claims at record high
• Seasonally-adjusted jobless claims way down but…
• Jobless claims still above 600,000

(H/T Prieur du Plessis)

Source

Walt Handelsman – Newsday

Related posts:

• Kass: Bearish on equities
• News from around the web: 2009-10-13
• Jobless claims back to 551,000; employment missing link to recovery
• News from around the web: 2009-07-31
• Average U.S. jobless claims top 600,000

For the latest week, U.S. jobless claims hit 514,000, the lowest level since early January. This brings the widely-tracked four-week average down to 531,500, also a 9-month low. In addition, continuing claims fell below 6 million for the first time since March. All of these seasonally-adjusted data points suggest that the unemployment situation is slowly improving. My baseline scenario to date sees this improvement continuing to where initial jobless claims fall back into the mid-400s by year end so that non-farm payrolls show job gains late this quarter or early next quarter.

However, this past week saw two negative data points pop into the picture.  When looking at the non-seasonally adjusted (NSA) data, the number of initial claims spiked up above 500,000 for the first time in 11 weeks. This is the normal seasonal pattern and is to be expected; however, last week’s spike caused comparisons to last year in (4-week average NSA) initial claims to tick up (42K more initial claims than last year versus 36K more the week before).  Translation: initial claims are not coming down fast enough to rule out a double dip recession.

I see this period through early December as critical for the economy and jobless claims will be a key signpost.  Right now we are in a weak recovery: jobless claims are coming down, retail sales (ex-autos) have stabilized, inventory levels are incredibly low. All of this points to an economy poised for a rebound.  However, employment indicators are still lagging. With the holiday season upon us soon, the moment of truth will arrive.  In the next couple of months, two things will happen.

• Seasonal adjustments on jobless claims data will spike up through January. That means there will be more layoffs due to seasonal patterns. Because jobless claims are in cyclical decline, this sets up situation in which the adjustments could really cause a surprise downswing in claims.  The week ending December 5th when the adjustment factor hits 140.2 is the week to watch.
• Holiday retail sales will be critical to post-Holiday layoffs. Some retailers see the holiday season as a make-or-break.  Last year, there were lots of stories about retailers waiting until after the holiday season to shut down stores and end leases.  Is this what we should expect if holiday sales are poor? If so, there will be a concomitant rise in jobless claims which would put the recovery in jeopardy.

Overall, as the jobless claims series is published weekly, it is the best real-time gauge of how the recovery is progressing and it bears watching closely.

Related posts:

• U.S. unadjusted jobless claims fourth highest in history
• U.S. jobless claims fall to 3-month low, still over 600,000
• Jobless claims data tell a mixed story
• U.S. jobless claims of 652,000 show continued weakness
• Has the increase in U.S. jobless claims peaked?

Marshall Auerback here with a few thoughts on employment policy and the limit to government spending in a fiat currency regime.

The Detroit story Edward just posted illustrates that we should start by eliminating the notion that society requires a buffer stock of unemployed people to discipline wage demands and protect profits.  Not only is this immoral and inhumane, but economically inefficient.  We can have both full employment and price stability via a Government as Employer of Last Resort.

This new class of government employees, which could be called supplementary, would function as an automatic stabilizer, the way unemployment currently does. A strong economy with rising labor costs would result in supplementary employees leaving their government jobs, as the private sector lures them with higher wages. (The government must allow this to happen, and not increases wages to compete.)

The reduction of government expenditures is a contractionary fiscal bias. If the economy slows, and workers are laid off from the private sector, they will immediately assume supplementary government employment. The resulting increase in government expenditures is an expansionary bias. As long as the government does not change the supplementary wage, it becomes the defining factor for the currency- the price around which free market prices in the private sector evolve.  It will also enhance the effectiveness of traditional policies designed to improve aggregate demand because it will create a buffer stock of EMPLOYED personnel for the private sector to draw upon, rather than a reserve army of unemployed.

There is no reason for President Obama and his economic advisors blithely to repeat truisms that “unemployment is a lagging indicator” as a means of justifying further government spending (the truisms you cite here should reflect the myths you’ve mentioned, not introduce entirely new ones).  The reality of a double digit unemployment rate is de facto proof that government spending is too restrictive.  His concern for the welfare of America and for the nation’s future is no doubt genuine. However, in the haste to renounce financing decisions which would, in fact, be very harmful if not impossible for a private business or a household, in their eagerness to accept uncritically the myths of neo-classical economics, the Obama Administration is overlooking the important differences between private finance and public finance. Only a misunderstanding of money and accounting prevents Americans from achieving a higher quality of life that is readily available.

Apropos money, we need to get over this notion that the government can’t “afford” something. Functionally, dollars have the same value to our government that Super Bowl tickets have for the stadium.

As you go into the stadium, you hand the man a ticket that was worth maybe $1000, and then he tears it up and throws it away. Why? Because the ticket has served its function: it has enabled you to gain entry to the event in question; similarly, a tax is paid to extinguish a state liability, but as soon as the tax is paid, it has no further value to the government. The tax receipt can be sent to the shredder. How does the govt taking your cash and throwing it in a shredder pay for anything?

The answer is that it doesn’t.

Taxes function to reduce aggregate demand, also known as spending power, and not to collect what the govt needs to spend on something else. As a matter of conceptual clarity, it makes no sense to say that a government ever “builds up a store of savings” that allows for higher spending capacity in the future. The govt neither has or doesn’t have any dollars.It spends by changing numbers upwards in our bank accounts.  Government is the score keeper for the monetary system.  Just like the stadium is the score keeper for the football game.

Awarding 6 points for a touchdown doesn’t use up some stock of points held by the stadium. We can always get another “3 points” each time a team kicks a field goal. We don’t have to “pay it back”.

You don’t “save” what you have the option of creating or not creating (i.e. fiat currency). Not spending, not “creating currency” via crediting bank accounts, simply means less present day economic output.

We all learned this as the paradox of thrift. There is nothing to “save” . The government is never revenue constrained. This is in contradistinction to the way users of the currency, vs. the issuer of a currency, such as a household functions. For them, spending is constrained by income. their checks will bounce if there is no money in their accounts. And for users of the currency monetary savings can be stored to permit higher consumption in the future.

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Jobless claims were reported as 521,000 on a seasonally-adjusted (SA) basis for the week ended October 3. This is the lowest reported figure for initial claims since January 3. The data came in lower than expectations and was matched by a drop in continuing claims to 6.04 million.

While both numbers are still high by historical standards, the trend has been down since March for initial claims and June for continuing claims. The widely followed 4-week averages are at their lowest levels for initial and continuing claims since January and April respectively.

Of course, the unadjusted numbers have been in the 400s since the beginning of August. Because of the downward drift in initial claims, I do not expect them to tick significantly higher despite the usual seasonal pattern. 

Overall, that means the employment market is weak enough to contribute to rising unemployment rates and job losses for the next few months.  However, as the trend is toward lower numbers, I would anticipate this to end in Q1 at the latest. But, because of increasing labor force participation, I expect the base unemployment levels will continue to rise. This fits in with my general view of a weak recovery vulnerable to exogenous shocks.

Update: One more thought – we have what I would describe as a structurally high private unemployment level. At a minimum, we could change our automatic stabilizers to add more stimulus as depending on the severity of the downturn. For instance, it would be a good start to extend unemployment benefits to 39 weeks automatically if the rate of unemployment rises more than 1% over six months/one year and to 52 weeks if it rises more than 1.5% over that time frame.

As an example, Germany has a more robust system of automatic stabilizers and it is thought this has helped them recover from recession faster. We might benefit from some kind of automatic but prudent counter-cyclical stimulus.

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Today’s jobless claims report should dispel the notion that the labor market in the United States is getting significantly better.  Initial jobless claims rose again to 551,000 from 534,000 the week prior.  The 4-week average is still an exceedingly high 548,000 and continuing claims are over 6 million  (All figures are seasonally-adjusted. Chart is below).

The silver lining is unadjusted claims. They came in at 443,000 last week, marking the seventh consecutive week in which unadjusted initial claims were below 500,000.  As layoffs have declined in this business cycle, I do not expect this number to tick as high relative to the seasonal low around Labor Day as it usually does throughout the business cycle. What that means is that the seasonal adjustments may be overstating the jobless claims number, which I expect to fall well into the 400s by year-end.

My overall take on these numbers leading into tomorrow’s unemployment number is this: The labor market is extremely weak because of a paucity of jobs not because of a torrent of new layoffs.  There are 5-6 job applicants for every job opening. This means that the unemployment should tick higher, reaching at least 10% before it starts to recede.  When the unemployment rate does recede, the decline will be slow due to the ability of firms to increase the productivity of existing workers (record-low hours worked and a glut of available temporary workers precede any new hiring). This necessarily means that the economy will be vulnerable to exogenous shocks (think protectionism, terrorism, etc).  So, for the foreseeable future, the employment market will be the missing link to full economic recovery.

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The latest jobless claims data is in, with initial claims registering 530,000 and continuing claims coming in at 6.1 million.  These figures are well off the business cycle highs of a few months ago but still quite elevated. 

While the as-reported seasonally adjusted initial claims numbers are in the 500s, the actual initial claims have been in the 400s for 6 weeks now. And the 4-week average of just over 442,000 is now within striking distance of the 4-week average at this time last year. I anticipate the gap will close by the end of the year.

On the other hand, continuing claims remain above 6 million and are a full 2.3 or 2.6 million above last year’s levels, depending on whether you use seasonal adjustments or not.  Clearly, the initial claims figures are declining faster than the continuing claims figures.  And, remember, an awful lot of people have exhausted benefits before finding a job.

So, stepping back for a moment, this picture suggests that unemployment will remain stubbornly high. I think this is a view most economists hold.  But, there’s more to the data than this. The data suggest a recession that is ending, but with remaining structurally high unemployment.

Look at it this way: When you think about GDP as a measure of the economy, what you normally hear is the economy grew 1% or 3% or the economy contracted 2% last quarter.  This is what is known as a first derivative statistic.  That means all we are measuring is the change from one period to the next. That’s it.

Equally, when we think about economic recession and recovery, we are also measuring change from one period to the next. If unemployment is 9% in one period and 9.3% in the next, the difference is minimal enough that a recovery could take hold because of cyclical factors like the inventory cycle and automatic stabilizers. So recovery can come even in the face of high unemployment.

Therefore, when I look at jobless claims, I think not only in terms of absolute numbers but in period-to-period changes because this coincides with the first derivative measures which reported GDP and business cycle measures are. For example, we are fast approaching a point where jobless claims are no higher than they were at this time last year.  As a result, one should expect a recovery to take hold.

What are the flies in the ointment?

1. Initial claims are still at a level that suggests job losses and rising unemployment. While the trend in jobless claims suggests we will start adding jobs soon (maybe even before the end of the year), it is altogether possible that the move in claims down stops or reverses.
2. The salve of stimulus and the boost of cyclical forces like automatic stabilizers are really the only thing keeping us from recession. if these are removed before unemployment stabilizes, the only way to produce economic growth in the short-term would be through the accumulation of debt.

All that said, when jobless claims do slow to a point that allows the economy to add jobs, it will do so at a very high level of unemployment (say 10%). Given the record low capacity utilization rates and the record low hours worked per employee, it is likely that unemployment will remain structurally high for a long period afterwards since employers are not going to add a ton of jobs in that situation.

The upshot of this structurally high unemployment is it puts a debt-laden economy at perpetual stall speed. Any exogenous shock (oil prices, inflation, withdrawal of stimulus, increase in interest rates) would throw us back into recession. And given the already high rates of unemployment and need for deleveraging in the private sector, that recession would likely be very severe.

Therefore, the only way out of this trap is exports as it could grow the economy and reduce slack capacity enough to move us away from stall speed. But, of course everyone is suffering with the same problem of lower growth and excess capacity.

Source

Unemployment Insurance Weekly Claims Report – U.S. Department of Labor

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The jobless claims numbers have been telling us the same thing for weeks now, namely that the employment market is still weak but that layoffs are gradually slowing.

But,  the unadjusted number of initial claims dropped 59k last week to 407k.  I suspect this was due to a late Labor Day holiday in the States. Nevertheless, the 407,869 were the lowest figure since 27 Sep 2008, a full year ago. And they were barely more than the year ago data. See the data highlighted in red in the chart below.

Last year, when Labor Day came, the unadjusted figure was 336,733. So we are still averaging 90,000 more in the unadjusted claims data (using the 4-week average). 

But, after Labor Day, the raw unadjusted numbers pick up substantially due to seasonal factors. The test as to how well the labor market is doing will come in this next period.  If the numbers stay in the low to mid 400s through November as I suspect, that is good as the labor market becomes less of an economic headwind.  If they go higher, the jobs numbers will surprise to the downside.

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The U.S. Department of Labor confirmed that for yet another week average jobless claims remain in the 560-580K range where they have been for two months. Initial claims for the week ended Sep. 5 were down to 550,000, a decline of 26,000 from the previous week.  And continuing claims dropped as well. 

But my focus is on the seasonally-adjusted average number and this is not coming down yet.  It is still 128,000 more than at this time last year. Long story, short. The U.S. jobs market is still weak and remains the most serious threat to a sustained recovery.

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The Department of Labor reported that jobless claims in the latest week decreased 4,000 from a revised 574,000 in the previous week.  The figure was higher than analysts anticipated. Initially, the last week was reported as 570,000.

The 4-week average is now 571,250, marking the eighth consecutive week that initial claims for unemployment insurance have come in below 600,000. Initial claims are well below the peak levels from April, the decline being well within the norm for recessions over the past four decades.

However, this recession is not marked by an unprecedented surge in job loss. Job losses are not the problem.  It is the lack of hiring, which has made the downturn so punishing for the jobs market. Gross job losses are less important than net job losses – and net losses is where we are struggling.

The ADP report yesterday indicates we were down another 298,000 private sector jobs in August – this after 17 straight months of job losses. Expect a similar number when the Employment Situation numbers are released tomorrow morning.

But, the lacklustre employment market dates back to the previous recession and jobless recovery. Non-farm payrolls are now lower than they were when President Bush entered office over 8 years ago in January 2001. This record is much worse than any period since the Great Depression. (Below I have constructed a chart using all available data to show the 100-month change in non-farm payrolls since January 1939 when record-keeping began).

Conclusion: The employment market is weak and – absent asset price inflation – it will be a drag on the ability for consumers to spend for some time to come. Tim Geithner is correct that ending stimulus now would throw the economy back into recession. Depending on your economic philosophy this is either a necessary end to artificial economic support or a vital lifeline preventing untold economic harm.

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The U.S. Department of Labor released the Unemployment Insurance Weekly Claims Report showing that initial jobless claims decreased 10,000 in the latest week to 570,000 from an upwardly revised 580,000 the week prior. The 4-week moving average is now 566,250, less than 100,000 off the April peak.

Since the week ended Jul. 18, the average initial claims figure has been hovering in the 560-570,000 range. So, this marks six straight weeks during which we have seen no discernible improvement in the employment picture painted by jobless claims data.

It is now 20 weeks since initial jobless claims peaked and we are shedding only 92,500 fewer jobs. I found this quite worrying until I compared it to previous recession, demonstrating that the last two jobless recoveries had a similar dynamic. Even in the recessions of 1970 and 1974-75, jobless claims were slow to fall.

Below is a comparison of the 20-week fall during previous recessions:

• 2001: 92,750. Oct. 20, 2001 peak of 489,250 vs. Mar. 9, 2002 figure of 396,500.
• 1991: 68,500. Mar. 30, 1991 peak of 501,250 vs. Aug. 17, 1991 figure of 432,750.
• 1982: 185,500. Oct. 9, 1982 peak of 674,250 vs. Feb. 26, 1983 figure of 488,750.
• 1980: 179,750. May 31, 1980 peak of 629,000 vs. Oct. 18, 1980 figure of 449,250.
• 1974: 61,250. Feb. 1, 1975 peak of 560,750 vs. Jun. 21, 1975 figure of 499,500.
• 1970: 25,250. May 9, 1970 peak of 343,750 vs. Sep. 26, 1970 figure of 318,500.

If one looks at these numbers in percentage terms, the fastest job recovers in order are:

• 1980:  28.6%
• 1982:  27.5%
• 2001:  19.0%
• 2009:  14.0%
• 1991:  13.7%
• 1974:  10.9%
• 1970:  7.3%

So, contrary to my expectations, the fall in unemployment claims is very much in line with what we have seen in recessions over the previous 40 years.

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The data from the most recent Unemployment Insurance Weekly Claims Report are not particularly bullish. Claims are up for the second week in a row, dragging the 4-week average up with them. Year over-year comparisons continue to drop, but the two week increase is certainly a sign that employment is very much a weak link in the recovery story. And an average of 570,000 initial claims is enormous.  Continuing claims were flat.

Notice that actual claims fell by more than 28,000 (highlighted in red with average claims), marking the third week below 500,000 for actual unadjusted claims. The true pattern for claims data will be more readily apparent after Labor Day when the seasonal adjustments will be moving in the other direction.

Source

Unemployment Insurance Weekly Claims Report – US Department of Labor

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The Unemployment Insurance Weekly Claims Report was released this morning, showing a slight increase in initial jobless claims to 558,000. Continuing claims came in at 6.2 million, down from 6.3 million the week before.  All of these figures are seasonally-adjusted.

On an unadjusted basis, claims were below 500K for the second week running.  In looking at the data now, I tend to use the yearly change in unadjusted initial claims as a leading indicator.  The thought here is that initial claims represent both a ‘natural frictional’ level of layoffs and another layer related to the health of employment.  I use the yearly comparison of unadjusted claims to strip out seasonal adjustment distortions. Increases in initial claims over a given period suggest that the employment market is getting weaker.

Right now, we are tracking about 100,000 above last year’s level of claims.  This is significantly less than the over 300,000 change we saw at the peak of the recession in January – but still indicative of recession.  Employment is the weak link in the recovery chain.

As we contemplate recovery, I should remind you that positive GDP growth does not mean a recovery is at hand.  It must be sustainable over the medium-term.  So while the decrease in claims numbers make recovery more likely, we won’t know that recovery has really taken hold until well into 2010.

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The US Department of Labor released the employment last data point before tomorrow’s widely anticipated unemployment number comes out. The data showed jobless claims declining to 550,000 from 588,000 on a seasonally-adjusted basis. This puts the 4-week average at 555,250, the lowest average number since January. Meanwhile seasonally-adjusted continuing claims ticked up a notch to 6.3 million.

On the whole, the data do not represent any meaningful change in direction. Initial jobless claims are decreasing slowly from peak levels this past Winter but are no where close to a level that suggests the economy is adding jobs.  This means that the unemployment will continue to rise for the foreseeable future.

I should note that the unadjusted data last week were very low, with initial claims at 463K and continuing claims at just under 6 million, both multi-month lows.  The seasonal factors now at 84.2, will reach a low of 74.8 in early September, meaning the unadjusted data will continue to fall due to seasonality of hiring patterns (the reported number multiplies the unadjusted number by the seasonal factor and divides by 100). 

Because claims are now falling with the business cycle, it makes the seasonal adjustments somewhat more distortionary to the underlying data. After Labor day, when the seasonal pattern begins to reverse and is working at odds with the business cycle trend, the underlying business cycle trend will be more clear.

Source

Unemployment Insurance Weekly Claims Report – Department of Labor

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The US Department of Labor released data showing that 584,000 people filed initial claims for unemployment insurance this past week.  This is up sharply from the upwardly revised 559,000 last week and 524,000 two weeks ago.  The past two weeks’ data were artificially low due to shifts in auto plant production schedules. Now, the data are normalizing back to a trend above 550,000 weekly initial claims, a figure that should still be considered indicative of a week labor market.

Nevertheless, the widely followed 4-week average has been moving down steadily. For seasonally-adjusted claims, we have seen a downward trend for sixteen consecutive weeks now.  In addition, the actual claims numbers from this past week were unusually low, with barely over 500,000 filing for claims and continuing claims down to just over 6 million (see red areas in figure above).

On the other hand, continuing claims have only just started down (and this does not include the additional claims mandated under the February stimulus package). Average initial claims are only down 100,000 from the peak, which is an unusually low figure after 16 weeks of declines. 

The trend is down for jobless claims.  But, this is not a V-shaped labor market recovery.

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When last week’s US jobless claims number was released, I indicated it was artificially low because of changes in the summer auto production schedules.  Rather than look at the numbers as they are released from week to week, we should look at the 4-week moving average and its comparison to previous periods to gauge the trends in the employment market.  Overall, the trend in jobless claims shows a slowly declining but still very elevated number of layoffs, meaning the employment market is still weak and is not supportive of increases in end consumer demand.

The numbers released today show 554,000 new claims and 6.2 million continuing claims for unemployment insurance.  This puts the 4-week average at 566,000 for new claims and 6.5 million for continuing claims, levels that have traditionally been consistent with recession.  To see consistent job growth we would need to have claims drop by at least another 100,000 per week.

On the other hand, most of the trend measures I track show significant improvements on a seasonally adjusted and unadjusted basis.  The two measures I would like to highlight are the year-on-year unadjusted initial claims and the six month adjusted initial claims.   The year-on-year number is down to 181,000 from a peak of 327,000 in January. The six-month number is now down to 39,000, below the 50,000 level I have generally used as my alert line to anticipate expansion and contraction. However, I would add that year-on-year continuing claims comparisons show over 3 million more people collecting unemployment insurance than at this time last year.

So, the trend is pretty clear in regards to unemployment claims: they are headed down.  But, the absolute level of claims does not suggest recovery is necessarily at hand.  When we break below 500,000, or better yet 450,000, we should be able to signal all clear.

Sources

Unemployment Insurance Weekly Claims Report – US Department of Labor

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On the surface this week’s jobless claims data look very good. Initial claims came in at 522,000, the best since the first week of the year and pulling the 4-week average below 600,000 for the first time in about six months.  Moreover, there was a huge dip in continuing claims to 6.27 million, down from the upwardly revised figure of 6.91 million.  And the year-over-year trends continue their steady march downward.  This is the best weekly data on seasonally-adjusted figures we have seen in months. It’s all good, right?

Not exactly.  Further examination reveals a more mixed scenario.  The unadjusted data were not nearly as favorable.  This is in large part because of changes in summer auto production schedules. We will have to wait and see if this data is confirmed over the coming weeks.

I have circled the latest unadjusted data points.  And you should notice that both initial claims and continuing claims rose.  In fact, initial claims for unemployment insurance rose by a very substantial 86,000.  So, before you pass the Courvoisier to celebrate economic recovery, let’s allow a few more weeks of data to confirm the large downward trend of the last two weeks of seasonally-adjusted initial claims. After all, initial claims are still well north of 500K.

I should point out that the declining trend in year-over-year comparisons of the unadjusted data continues unabated.  Therefore, as I indicated last week, I would characterize this as a weak employment market. However, the trend in unemployment claims in the United States is clearly down. Since, this downward movement is still slow, expect a weaker jobless recovery in which the unemployment rate continues to rise into double digits.

Source

Unemployment Insurance Weekly Claims Report – US Department of Labor

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