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Claims fell more than expected in the latest week, to a level (453K) that is a bit below the average for the year to date (465K). It's now clear that the unexpected swings in the index that occurred in July and August were the result of faulty seasonal factors (i.e., the actual numbers didn't behave as the seasonals had expected). The underlying trend in the labor market has been large unchanged this year, and that is a move towards very gradual improvement.
This chart shows the actual, unadjusted claims number, which has been clearly trending down all year. Importantly, it is now below the levels that prevailed at this time two years ago. Normally, actual claims would be moving higher at this time of the year, but so far that hasn't happened.
As this last chart shows, the biggest change in the claims situation has been the significant decline over the course of the year in the number of persons receiving unemployment insurance. That number has fallen by 3.75 million since the high at the beginning of this year. It's likely that at least some portion of this decline has occurred because some people are finding jobs. According to the household survey, some 1.8 million new private sector jobs were created in the first 8 months of this year. The improvements in claims to date suggests that next week's jobs number could hold some more pleasant surprises for the market.
15 comments:
I am a guy in my mid-50s, ergo I tend to know a lot of guys in that rough age range.
Some are unemployed, and I don't see how they will ever get another job. These are guys who can wear a tie and form a sentence.
Additionally, almost anybody connected to construction is dead.
Man, oh man, we really need to crank this economy up, by any means necessary.
You are right about the economy, but the best way to do it is not QE2. We need a 180 degree turn on the direction of fiscal policy. Congress needs to trust the private sector with its own money. Extend the Bush tax cuts for all. Cut the corporate income tax. Cut the tax on remittance of overseas profits. Cut spending back to the levels of a few years ago. Repeal ObamaCare and replace it with market-oriented reforms.
Scott....this is a quibble..but you
know actual claims are going to go
up and peak in January... the question is year over year pace...
Here are the seasonal factors for the rest of the year and into 2011...
http://www.ows.doleta.gov/press/2010/032510.asp
Click the excel file at the bottom of the page....
Well, I agree with Scott Grannis on all matters fiscal--I would even eliminate the corporate income tax, in favor of a gasoline tax. I think we could wrench down federal outlays to 16 percent of GDP, though it would take a long, hard look at military outlays, and if we even need HUD, and the Department of Education at all.
But the conditions now in the US are a lot like that of Japan. Milton Friedman advocated QE for Japan. We can't wait for structural reforms. And there is no assurance that the R-Party will do that much better than the Dems on real structural reforms.
See here, Hoover Institution report: http://www.hoover.org/publications/hoover-digest/article/6549
I am willing to take some inflation chances to get the economy going again--but different people have different points of view.
This is a great forum to hash things out.
Benjamin: perhaps you could explain why you think that pumping more reserves into the banking system will translate into significant economic growth. I note that $1 trillion in excess reserves hasn't made much of a difference so far, and it's been almost 2 years.
Scott, I would prefer if MF were here to offer a well-reasoned explanation. The link to his paper is well worth reading, as with all MF commentary (and yours!). I am not a professional economist. Here is what I gather--
The plan of Scott Sumner (Money Illusion blog) is $100 billion of QE monthly, plus requiring banks pay interest on reserves to the Fed, plus a strong signal that the Fed is targeting higher nominal GDP growth, or inflation.
My take is that economy is suffering from a lack of aggregate demand. There is plenty of slack. As stated, inflation is low, unless you believe the Boskin Commission (and I do) in which case we are at zero inflation right now, or close. That's a full two percent below target, and maybe the target should be a little higher for now.
Obviously, we can't go lower on interest rates, the usual Fed tool.
If we eschew fiscal stimulus (and I do), and lower interest rates are not possible---well, QE is the only macro tool left.
Yes, I would like structural improvements, both federally and from the 50 states, and from the several thousand local juridictions (including Newport Beach, which outlaws beach-side skyrise condos, which would be a boon to builders and the local economy).
But what are the chances for significant structural improvements? Will Newport Beach embrace Miami Beach style development? Will low-income people give up Obamacare? Will defense outlays be cut back to 2000 real levels? Will farmers be told to stand on their own? Will we wipe out the mortgage interest tax deduction and Fannie and Freddie?
Let's face facts: Both parties are deeply entrenched into patterns that harm economic output. (I am no fan of Obama; indeed I think he should have made Jobs the #1 issue, and gotten out of Iraqistan almost immediately. Obamacare may cover more people, but likely will be too expensive.)
MF was confident that if enough money is pumped into the banks, Japan could obtain growth and inflation. Inflation starts to boost real estate, a good thing at this point. MF suggested being aggressive was the key. I guess the Fed has not been aggressive or sustained enough. The numbers sound large--but the need is larger.
I am even more optimistic for the US. Our real estate slump was deep, but not as bad as that of Japan's. Once real estate starts going up again, I think we get a virtuous cycle going, as investors try to buy while it is cheap. I also think 20,000+ on the Dow in a few years is possible.
A revival of property and equity markets would do a lot for this country and job growth.
Benjamin,
I'm a construction lawyer in a big firm and we're actually seeing an uptick in new construction projects. It's still slow, but better than it was last year and I'm hopeful it will improve next year. There's no question that the construction industry is in bad shape, but I remember it was very bad in the early '90s with many saying it would never come back and sure enough, it did.
Bill-
Yes, there has been improvement--it would be better for all concerned if we really got things rolling again.
BTW, I talked to an industrial real estate broker, handles both sales and leasing, 30 years experience in L.A. market, and he says things are not getting better. They are better than the bottom, but not improving.
I think inflation now is about as likely as forest fires in the dead of winter. We can risk it--and have time to cool things off if we overshoot on stimulus.
This is going to be be most interesting to watch. The election is only a few short weeks away. The Feds will keep their collective heads down until that is done. After the election, I really think anything is possible from them. Unemployment will not come down meaningfully unless we get faster economic growth and so far its not there. The fiscal tools are not working, unless we drasticly cut spending and the feds just might see that as a drag. So I think something's in the oven cooking, and it will come out very soon after the election.
Incidently, September turned out having the best equity market performance since 1939, the year Hitler's Nazis invaded Poland and started WW2. All sectors did not perform equally, but Scott took some heat from the pessimists throughout the summer (especially June and august) for remaining bullish. I'm only bringing this up to point out his good judgement, and to say 'thanks'. No reflection on those who disagreed...I've been wrong far too often to criticize.
this blog is not slowly improving. it remains blinkered in its tilt and persistent boosterism with scattered brilliant observations about politics.
Scott,
What are the component pieces that you're using for the Unemployment Claims chart. It seems that you are using non-seasonally adjusted Continuing Claims + non-seasonally adjusted EUC 2008 benefits...however, you are not using the Extended Benefit recipients of about 900k.
Also, I would argue that using non-seasonally adjusted figures for the Continuing Claims is probably not the best choice.
Rather using SA data and mixing it with the emergency and extended program figures (which while they are not seasonally adjusted, they have no real seasonal aspect to them anyway) makes more sense. This puts all three figures into the same context from a seasonal standpoint.
When you do this, the graphic doesn't show nearly as much of a pronounced drop-off at all. You do get the dip in July when benefits were stopped momentarily, but this shift reduces the drop-off you describe.
Scott,
What are the component pieces that you're using for the Unemployment Claims chart. It seems that you are using non-seasonally adjusted Continuing Claims + non-seasonally adjusted EUC 2008 benefits...however, you are not using the Extended Benefit recipients of about 900k.
Also, I would argue that using non-seasonally adjusted figures for the Continuing Claims is probably not the best choice.
Rather using SA data and mixing it with the emergency and extended program figures (which while they are not seasonally adjusted, they have no real seasonal aspect to them anyway) makes more sense. This puts all three figures into the same context from a seasonal standpoint.
When you do this, the graphic doesn't show nearly as much of a pronounced drop-off at all. You do get the dip in July when benefits were stopped momentarily, but this shift reduces the drop-off you describe.
J&J: I've tried to do the best I can with the data I have. I think I'm justified in using NSA data because the point of this exercise is to see how many people are on the dole. There is no seasonal adjustment factor, in any event, that would make sense given the magnitude of those currently receiving UI.
Scott,
I appreciate that you're doing the best you can with the data you have.
The "Extended Benefits" program that currently has about 900k current beneficiaries is published each week on the press release. The figure is right above the EUC 2008 figures in the last chart.
I would argue that the seasonality of Continuing Claims - now just a component of UI claims - is still real and still has validity - regardless of the number receiving UI.
As you point out, now is about the time you'll see the NSA figures begin to rise. But, the SA factors should be used to adjust for that to give us all a better picture of the current situation.
One major question that I think should be easy to discern, but isn't discussing, is the number of people falling off the dole simply because they've run out of benefits - across all of the various programs.
It seems that the number starting benefits - in a subdued but not shrinking economy - will eventually be smaller than those running out of entitlements. Is this happening now? Is this part of the reason for overall UI claimants falling rather than simply job growth?
I observe that the EUC and Extended Benefit numbers have been falling, but that might not be due to enough of them finding jobs.
Wouldn't this be an important thing to know to really judge the overall health of things?
It seems that most observers reflexively assume that the fall in benefit claims is universally good.
It's been about 100 weeks since the heart of the crisis and its affect on the real economy.
We can see the huge spike in initial standard claims happened about this time two years ago.
Wouldn't these people be falling off about now? They aren't necessarily finding work at the end. Rather, they might be falling off into the financial abyss.
Knowing this has implications on how the economic data will present itself over the next six months, I imagine.
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