Thursday, October 11, 2012

Labor market conditions just keep on improving


Seasonally adjusted initial claims for unemployment last week were much lower than expected (339K vs. 370K), mainly because on an unadjusted basis, actual claims failed to rise as much as they usually do in the first week of October. Compared to last year at this time, actual claims are down 19%. Layoffs are undeniably declining. Conditions in the labor market just keep on improving.


The number of people receiving unemployment insurance has dropped 20% in the past year. So far this year, 2.26 million people have dropped off the unemployment compensation rolls. We are talking about some serious changes on the margin here. Every week, more and more people have an increased incentive to find and accept a job, even though the pay might be miserable compared to their last job. This isn't pleasant for many, but it is one way that the economy "heals."


And with this ongoing improvement in labor market conditions, equities move higher. The market is rallying not because optimism is rising, but because of the improvement on the margin in the economy. Put another way, the market is up because the economy is not down, and in fact is getting a little better. Slow improvement, but improvement. The market has been braced for deterioration, and instead we get modest improvement. This is enough to push risk assets higher, and Treasury prices lower; 30-yr Treasury yields are up 70 bps since last November.

UPDATE: Reader "Bike" notes correctly that last week's data was missing the results from one large state, and that likely accounts for a good portion of the decline in claims. I missed that fact. I think, however, that the downward trend in claims is most likely still intact.

11 comments:

brodero said...

The 52 week moving average of non seasonally adjusted initial jobless claims drops 1471 (huge) to 375,571....

This moving average has dropped 152 weeks straight (except for
one week in late April 2011)...been falling since November 7 2009...

Dr William J McKibbin said...

I concur with Scott's assessment -- we need more information regarding who will be elected, and that information will be here shortly -- in the meantime, I have my eye on events in California where Gov Brown has successfully delayed action on his budget deficit, apparently until after the election -- the "California problem" is likely to burst immediately following the election, but I am not sure -- for all I know, the Fed or Treasury have already embarked on some "secret bailout" arrangement with California already -- how California unfolds will provide guidance for other states such as New York and Rhode Island -- the dearth of news from California over the past couple of months is unsettling...

PS: A bailout of California would probably be good for Federalism economically, but horrible for the nation politically -- Californians have much to answer for at this point...

Bike said...

CNBC and Dow Jones have both confirmed that this latest weekly jobless claims report was missing data from one large state. Bloomberg noted that the Labor Department spokesperson said that one state accounted for most of the plunge in claims.

Read more: Why the Drop in Weekly Jobless Claims Is Flawed - 24/7 Wall St. http://247wallst.com/2012/10/11/why-the-drop-in-weekly-jobless-claims-is-flawed/#ixzz290MB9WuE

brodero said...

Say it was NY that is missing that would add 25,000 to NSA number which makes the SA number 365,000...if it is California it would be significant
Californina is reporting numbers around the 50,000 area

Unknown said...

An article on Marketwatch says one state - probably California - forgot to add in its usual beginning-of-the-quarter claims, which typically add 20% to the previous week's claims. If California's previous week # was 50,000, that means they missed about 10K claims. So the upward revision might next week not be as big as many are expecting.

Joseph Constable said...

The manipulated claims report was to get the headlines to give Biden talking points for the debate tonight. Obama doesn’t have to tell the employees of the labor department or the BLS to do these things. They are government class. Their objective is to strip the private sector middle class of power so they can reach deeper into their pockets. You are na├»ve if you don’t know this. Maybe you haven’t had exposure to public employees on a personal level to know how they believe. They have justification for how they believe. O.J. Simpson justified in his mind that what he did was ok. Everybody justifies their self interest.

I scan California periodicals on line all the time. There is little concern expressed about the budget deficit. There is almost zero, really, virtually zero reporting on the steep drop in sales tax revenue and the steep drop in the California manufacturing index. I believe the elitists in the media don’t want to give Romney/Ryan any support for their narrative that the economy is doing poorly by pointing out California’s problems. By the way, California starts cap and trade in a month. My only regret is that as an individual small player I cannot play this corrupt game.

Unknown said...

Yep, looks like CA is the culprit. Number would still have been better than expected.

Mystery solved

Bill said...

Scott,

Is the stock market correcting now by anticipating a Romney victory? Perhaps it prefers Obama?

Jim said...

These numbers are insignificant. If we did a comparison with levels in other years, our GDP should be much higher on a relative basis.

Higher stock market is a result of deficits and with coming austerity measures that will go away as well.

This is all an illusion. Show me better GDP numbers and I will become a believer.

Benjamin said...

The numbers are middling, but I pay more attention to total employed, and that number is still down from pre-recession highs.

For people looking for work, we are still in a recession.

My optimistic take is that either way, the economy gets better after the election. If Romney wins, we get a boost from business confidence and a more-aggressive Fed that seeks economic growth.

If Obama wins, the pressure will still be off the Fed to make Obama lose (see comments by Gov. Perry), and the Fed will ease somewhat.

That's my optimistic side talking.

My pessimistic twin says we are doing a Japan-lite. The Fed is not targeting zero inflation, as did Japan's central bank, but 2 percent.

If the Fed maintains its 2 percent target (though it now says maybe 2.25 is okay), we will have a long time to wait for a robust recovery, and could conceivably enter another recession before we do.

Unknown said...

Interesting. Now CA is denying that it delayed processing some claims. Looks like we'll have to wait until next Thursday.