Thursday, April 23, 2009

Unemployment claims still suggest a bottoming

First-time claims for unemployment rose a bit last week, but they haven't increased on balance now for the past two months. As this chart shows, the growth rate of claims appears to have peaked at a fairly high level. All of this continues to suggest, as I speculated last week, that the economy may be bottoming.


Public Library said...

Here is a interesting piece from Zero Hedge that highlights the upcoming wave of defaults and possible next wave of unemployment...

"the truth is that aside from ultra high quality Investment Grade names and TLPG-backed financial issuance, the credit market is for all practical purposes still in critical condition and about to be carted off to the morgue."

"While credit markets are still marginally open to only the highest quality and least risky corporates, it seems that virtually everyone who still has capital markets access is only focusing on balance sheet clean up. The other two major needs for new capital: M&A activity and CapEx are virtually at a standstill. This implies that the economic downturn is likely to get even worse as capital is drastically redirected not into investment opportunities and economic growth but merely band aiding against potential restructurings."

"A logical follow through question is with all the upcoming bankruptcies and the resulting mass lay offs, how can any pundits (let alone economists) say we will soon see an abatement in unemployment trends? If 20% of all HY companies indeed file for bankruptcy, the additional numbers of unemployed (by some estimates around 3 million upcoming pink slips) will represent another huge shock to the U.S. economic system. And this number excludes the newly unemployed from the upcoming fallout of a GM bankruptcy."

Scott Grannis said...

I see this as basically asserting that things will get worse and therefore they will get worse. (If 20% of all HY companies indeed default, then things will be really ugly. Well, of course.) It also assumes that no one is going to change their behavior despite the massive changes in relative prices that have occurred. It also assumes that the market has not yet priced in all the bad stuff (e.g., defaults) despite the headlines that remind us every day of all the bad things out there.

If things worked like this, we could never recover from a recession.

I see many signs of improvement, so I don't think things will get worse.