Thursday, May 2, 2013

Claims: it just doesn't get much better

The number of people getting laid off these days is very close to as low as it is ever going to be. U.S. businesses have just about completed their adjustment to the new realities set in motion by the Great Recession. The adjustment chapter of this business cycle is closing, and now the focus turns to the growth and expansion chapter. So far it's not very exciting at all; quite dull in fact. But the stage is set for some impressive growth if Congress can get the right policies in place. What's needed: continued cutbacks in government spending; entitlement reform; reduced regulatory burdens; lower and flatter taxes; and yes, repeal of Obamacare. 



The first chart above shows the seasonally adjusted level of claims, which has reached a new post-recession low. The second chart shows the actual level of claims, which hasn't been this low at this time of the year since 2007. Claims might drop a bit more by the end of the year, to around 250K, but it's unlikely we'll see anything lower. 


The number of people receiving unemployment insurance has been falling at a 20% annual rate for over six months. In the past year, almost 1.3 million more people are either working or have an increased incentive to find and accept a job. This is a very healthy change on the margin.


Announced corporate layoffs have been very low for over 3 years.

If there is one important message here it is that based on very timely data (weekly claims, reported with less than a one-week lag) there is absolutely no sign of any sudden economic weakness or impending recession. This economy is highly likely to continue to grow, even if at a relatively slow rate. In the absence of recession, and with continued growth very likely, it is very unlikely that corporate profits are going to sag, or that corporate cash flows are going to dry up. Equities and corporate bonds thus look very attractive relative to the almost-zero yield on cash.

The Fed is trying hard to encourage people to take on more risk, and the data coming from the economy makes a compelling case. If Congress could get its act together we'd be off to the races.

11 comments:

William McKibbin said...
This comment has been removed by the author.
Unknown said...

Interesting prediction
^
Note the first graphic, and especially the 2 sentences right above it.

John said...

"What's needed: continued cutbacks in government spending; entitlement reform; reduced regulatory burdens; lower and flatter taxes; and yes, repeal of Obamacare."

Scott: Is there a modern nation that does it the way you like? What nation offers the best prototype?

Scott Grannis said...

John: interesting question. If there were a country doing all the right things, I would probably be living there. I don't know of one. But I know a lot of examples of countries that have success with some of these policy prescriptions. Singapore and Hong Kong have great flat tax regimes and very strong economies; Bermuda has no income tax and a flat consumption tax and enjoys one of the highest standards of living on the planet; Chile has had great success with the privatization of its social security system; Switzerland has a small government and lots of prosperity; Ireland has had success with lower tax rates than its Eurozone brethren.

Benjamin said...

Yes, let's tell the GOP is eliminate day-glo pink Rural America and hyper-militarization, and the Dems to forsake social welfare nets.

Waiting...still waiting...

And when do we get rid of ethanol? If not now (see oil shale and gas) then when?

John said...

Thanks SI think a closer look at the nations you listed would be interesting. I understand the defe se of Bermuda is the responsibility of the British government. A huge subsidy, eh?

Average house costs over 1 million dollars. No 4 year colleges or universities.

Total labor force is around 40,000.

William McKibbin said...

One of the ideas being bantered about is to means test Social Security and Medicare recipients via a simple regulatory change that would provide for the following:

Social Security and Medicare payments can only be received by retirees who have already exhausted their qualified retirement plan assets.

In other words, Social Security and Medicare payments would become more like Medicaid payments, which requires that a potential recipient exhaust all of their personal assets (including their home and qualified retirement plan assets) before becoming eligible for Medicaid.

I like this plan -- the change would mean that only those without qualified and/or real estate assets would be eligible for Social Security and Medicare during their lifetimes, thus reducing entitlement spending dramatically overnight -- I wonder if "poor" Republicans will go along with this plan...

Tom Nugent said...

This chart should be juxtaposed with rising disability claims and the conclusion may not be as rosy.

Scott Grannis said...

Tom: the growth of disability claims has been fairly steady for more than 10 years: 4-5% per year. Growth actually has tapered off in recent years, and is now down to just under 2%. Nothing here that would explain the big decline in growth of the labor force that began all of a sudden in 2009 and the continuing decline in unemployment claims.

Rob said...

Scott, the decline in growth of the labor force is mirrored here in UK and is I believe a phenomenon of our fundamentally changed world: post-industrial, information age, exponential rise of technology and automation replacing human labor. Add in globalisation and the weakening of national-cultural-religious identities .. Meaning no longer such a pull from peer group or other authority influences .. Decline in size of families .. Desire for more work-life balance .. Society is atomized and people are floating free, liberated but also lost .. Being a "worker", having a "career", is just one more old-world identity that people wear more lightly these days.

Scott Grannis said...

My guess is that the decline in the growth of the labor force has a lot to do with the growth of the entitlement society/culture. Rising tax burdens may also explain at least part of it. I know for a fact that higher tax burdens have contributed to keep me out of the work force. My marginal tax rate is roughly 65%, and I refuse to work in order to give the government two-thirds of what I manage to make. Red tape is also a big factor.