Thursday, September 19, 2013

Jobless claims are very low, what's lacking is new hiring




The number of first-time claims for unemployment has been artificially depressed in recent weeks due to computer system overhauls in two states, but the trend in claims has not likely changed: it's down, and the level of claims is about as low as it's ever been (first chart above). Meanwhile, the number of people receiving unemployment insurance has rarely been so small. The labor market may be plagued by a dearth of new positions, but it is certainly not plagued by too many layoffs. Indeed, today the chances of a worker being laid off are about as low as they have ever been (second chart above).


The number of people who continue to receive unemployment insurance has not been materially affected by computer problems, and that too continues to decline. In the past year, the number has shrunk by 22%, or 1.12 million, and it is getting very close to pre-recession levels. In this aspect of the workforce, the economy has managed to stage an almost-complete recovery.


Very few observers pay much attention to the so-called Leading Economic Indicators, but the truth is that they haven't done such a bad job. They may not be very leading, but they have consistently turned down during every recession and risen during every growth cycle. As of August, they were up over 4% from a year ago, and that is consistent with a growing economy and very little chance of recession.

The chart above shows the level of the index, and I have highlighted how similar the past 13 years have been to the period from 1965 to 1982, during which time the stock market suffered from miserable  performance, falling 62% in real terms (see chart below). It's been a miserable recovery this time around, but the stock market is in much better shape, perhaps because we have not had a big problem with inflation like we did back in the 1970s.


All in all, it looks like economic conditions are gradually improving. All that's needed to convert this miserable recovery into a robust recovery are more "animal spirits." Businesses need to regain more confidence (so that they are more willing to invest in new plant and equipment and hire more workers), and a good way to help businesses regain confidence would be for regulatory and tax burdens to be lightened, and for monetary policy to become more rules-based.

10 comments:

Joseph Constable said...

Many say the stock market this time around is helped by QE and fiscal stimulus. After all, any savings not in Treasuries that is converted to Treasuries ends up ultimately as corporate profits via government spending. Same with newly created reserves that are converted to deposits dollar for dollar as the M1 Multiplier shows.

The Fed is fearful that the economy in terms of corporate profits has not "reached escape velocity".

Joseph Constable said...

Demand side economics has failed given the massive amount of stimulus. The only thing left is supply side reforms. But if you do that some people will do better than other people and you can't have that if it is caused by the private sector. It is only ok if some people do better than other people if the government decides who.

Benjamin said...

Tax cuts on productive people and enterprises and more QE.

Sad to say American resignation in full bloom.

People collect SSDI. One third of returning vets receive PTSD [payments (they say they are stressed out) paid for by the people who pay income taxes.

Does anyone remember 1976-1979? The economy expanded by 20 percent in real terms in four years, following the mid-1970s recession. Much larger structural impediments back then---unions, large retailers, manufacturers, Big Steel, OPEC, regulated phones transportation baking, you name it. Top tax rates in the 70 percent range!

Now the economics profession says all we can do is 1 or 2 percent growth a year and oh, oh, oh, we must keep inflation to under 2 percent or it is TEOTWAWKI.

It is defeatism, resignation, fear. No leadership from D.C., in Obama, or Bush jr.

Jeez, some people even wants us to get into more wars, maybe run another nation, after reaping such huge benefits from our Iraqistan follies.







William McKibbin said...

@Benjamin, have you investigated who got rich in Japan as a result of its lost years? I ask this because I am eager to understand how to make money in what will likely be decades of economic deterioration to come in America -- I am still bullish on rent and dividend earning equities, as well as world-class skills that convert into premium wages -- but, I would like to learn novel ways that Japanese investors might have prospered over the past several decades -- I am determined to make money in all markets, up or down -- we are in a down market that I expect to continue for at least 25-30 or more years -- how can we exploit these economic conditions to fatten our wallets?

William McKibbin said...

PS: Do we have to save Federalism in order to fatten our wallets? I am not so sure...

William McKibbin said...

PPS: I was pleased to see that Microsoft has given up on growth, and is instead buying back $40 billion of its stock and increasing its dividends by 22% -- more companies need to follow Microsoft's example -- companies that are not delighted to pay shareholder dividends are the dinosaurs of today's equity markets -- I am very concerned that US public corporations are ramping up executive salaries rather than dividends -- too many CEO's are squandering cash on growth -- until companies get back to the basics of selling products and services for a profit, and then rewarding their shareholders with those profits, investors will continue to waste their wealth investing in Treasuries, which is a lost cause by design -- CEO's who cannot deliver exciting dividends should kill themselves...

Benjamin said...

William M:

I don't think anyone made money in Japan, It was hopeless---property sank and kept sinking, equity sank and kept sinking, and bonds offered one percent.

You actually made money if you kept yen in bills stuffed under your mattress.

The Fed seems intent on avoiding deflation...but not really intent on asserting a pro-grwoth platform. It is still timid even by the Milquetoast standards of central banker-dom.

I liked property for the last couple of years and I have been right. The next run is hard to call. Equities are fairly priced. Property close. And who wants bonds?

At this point I advise friends to try to operate actual businesses. not be a passive shareholders (or chumps, as Redleaf and Vigilante all but said).

Locate in a growth area, maybe North Dakota. I wonder if you can get a bar license for the Permian Basin area in TX. Do that, jack.

If one is a rolling stone type, a good plan is too simply migrate to hot spots. I knew a couple who ran hair salons and did just that. They were open 12 hours a day.







Hans said...

By Mr Lance Roberts:

"We have been stating repeatedly over the last 2 years that we are in for a low growth economy due to the debt deleveraging, deficits and continued fiscal and monetary policies that are retardants for economic prosperity. The simple fact is that when an economy requires more than $5 of debt to provide $1 of economic growth – the engine of prosperity is broken.

As of the latest Fed meeting the forecast for 2013 and 2014 economic growth has been revised down to just 2.1% and 2.95% respectively as the realization of a slow-growth economy is recognized. However, the current annualized trend of GDP suggests growth rates in the next two years are likely to be lower that that."

Hans said...

Dr McKibbin, this may be of some helf...

http://web.archive.org/web/20011123103024/www.progress.org/archive/fold19.htm

BTW, is there a morning after pill for the Fed?

William McKibbin said...

@Benjamin, the good news is that a young person can invest (on margin via school loans) a paltry $250K into a medical school education, and earn that back in as short as a single year -- moreover, a medical school education pays premium wages for a lifetime -- wages that can be converted into dividend and rent-earning equities -- investing in world-class skills for oneself is a great investment that most Americans ignore -- I think we are missing something equally obvious in the equity markets today, but I have just not found it yet -- equities are so cheap these days that perhaps that's the deal regardless -- the future looks bright for those with world-class skills that earn premium wages that convert into dividend and rent-earning equities over a lifetime -- everyone else should be under cover in hiding from the four horsemen of the apocalypse...