Big change on the unemployment front

First-time claims for unemployment insurance continue to be relatively low, which suggests that the labor market remains reasonably healthy. However, this month marks a big change on the claims front: the expiration of the unprecedented emergency unemployment claims program that began about four years ago. As a result, today about 1.3 million fewer people are receiving unemployment checks than just a few weeks ago. While this is undoubtedly painful for many, it should help strengthen the economy in the long run, provided Congress resists the temptation to reinstate the program.

On a seasonally-adjusted basis, first-time claims for unemployment are running about 325K per week and trending slowly down. It doesn't get a whole lot better than this, to judge from prior economic cycles.

The chart above documents the expiration of the emergency claims program, and puts it into the context of non-seasonally adjusted continuing claims.

On a non-seasonally adjusted basis, 3.56 million people are currently receiving unemployment insurance checks every week. On a seasonally adjusted basis, that is about 2% of the workforce, as shown in the chart above. Government support for the unemployed has finally returned to levels that in the past were considered "normal" at this point in the business cycle. It is arguably not a coincidence that the unprecedented level of government assistance for the unemployed in recent years has coincided with the current recovery being the weakest ever. The existence of the emergency claims program likely retarded the labor market's ability to adjust to the new post-recession realities. 

Also released today were the leading indicators (although "coincident" would probably be a better adjective) for December. As the chart above shows, the fundamentals of the economy are relatively healthy, to judge by the increase in the leading indicators index over the past year.

Congress should consider the wisdom of John Cowperthwaite before deciding to reinstate the emergency claims program. When it comes to government assistance, doing nothing is usually better than doing something.