Thursday, August 12, 2010

Market pessimism is distorting the facts


It's a sign of the market's deep-seated pessimism that an observer can look at this chart of weekly unemployment claims and say, as this morning's Bloomberg story put it: "More Americans filed applications for unemployment insurance last week, signaling firings stepped up as the economy slowed. Initial jobless claims rose by 2,000 to 484,000 ... the highest level since mid February." Or consider this headline from Drudge: "Jobless claims jump to highest since Feb."

If every little rise in claims signaled a slowing in the economy, and every little drop a pickup, then the economy has been on a super roller coaster this year, surging ahead and then braking, then surging, etc. The truth is that the fluctuations in this series so far this year have minimal in nature. Look at the longer-term chart below for perspective—claims this year have been remarkably stable. Where are the articles reporting this? "Jobless claims over the past 8 months have moved in a very narrow range, far below the levels of this same period one year ago, signaling an economy that likely is growing at a relatively moderate and stable pace."

7 comments:

brodero said...

I had some disappointment today with jobless claims because I hoped the NSA number (420,000) would get close to recent NSA lows in May of 394,000. Seasonally we need to see this number break 394,000 and move lower before the
seasonal rise in NSA jobless claims picks up in the fall.

Public Library said...

On the margin, unemployment is heading the wrong direction. You could probably add a northward pointing arrow to the chart.

gp1093mp said...

Scott,

Great safari pictures! What I take away from the 2nd chart is that in past years after the peak of claims, there were several upward blips in claims. It looks like 92-93 and also 2002-2004. This time may be no different and is such part of the normal cycle.

The troubling aspect of the top chart is that the peaks of claims appear to have been sloping downward through the year and now that peak is just at the Feb levels. W/O the data in front of me, could the current spike in claims be due to the newest extension of unemployment benefits?

Scott Grannis said...

gp: I think you're right--the ups and downs we are seeing currently are to be expected even during the expansion phase of the business cycle. But I don't think the latest data are influenced by the extension of emergency benefits. That has shown up as a 1 million rise in those receiving emergency benefits (separate from the weekly initial claims).

Benjamin said...

OT, but timely:
Scott--
I notice you have a Tea Party link on your website. I have been watching the Tea Party with deep interest, but I concede fading hopes.

There is a long cover story on Nevada Tea Party candidate Sharon Angle (Nevada Tea Party candidate against Harry Reid) on cover of today's LA Times.

Maybe the article is biased. Still, there is much there that sets me back concerning the Tea Party.

Is Angle really a viable option (not that out two existing parties are viable at this point either)?

Is this really statesmanship?

Jason and Jen said...

Does the level of 484k cause you any concern given that these are usually levels seen during past recessionary periods?

Scott Grannis said...

It is cause for concern because it is a reflection of the fact that the pace of recovery is sub-par. Even with 3-4% growth, it will take us a very long time to recover to "full-employment" levels.