An update to the chart I posted last week. It's now pretty clear that weekly unemployment claims peaked near the end of March. They are unchanged now from the levels of late January. I've been saying for many weeks that downturn in claims was a good sign that we'd seen the worst of the economy, and all the green shoots out there have been supportive of that claim. The market has been reluctant to buy into the notion of improvement, though, until today. What got everyone's attention was the unexpected decline in continuing claims. That is very clear evidence that we've seen the worst.While we have very likely seen the end of the recession, the question going forward is how strong the recovery will be. So far, numbers like this don't say much more than that it will a gradual recovery, not a V-shaped one. But even a gradual recovery is far, far better than the depression everyone was worried about at the end of last year. The reality has proved to be orders of magnitude better than the fears, and that is the big reason that equity markets are up and bond yields are up. Even though the reality (modest growth from a low base) seems not very exciting.
Scott,
ReplyDeleteThe numbers are encouraging but let's not prematurly say this contraction is over. First we have to see output stop falling. I don't think we'll see firm evidence of that (don't get fooled by any dead cat bounces) until sometime later this summer. And until average initial weekly unemployment claims drop to around 400,000 expect the payroll (and possibly household) numbers to show declining job numbers. And even when that happens expect the unemployment rate to keep climbing for a few quarters.
So we have a long road ahead but I think you're probably right that the risk of a depression is now practically zero.