Wednesday, November 10, 2010

Continued slow progress in the labor market

The 4-week moving average of weekly unemployment claims has dipped to a new post-recession low, and the weekly number has surprised the market for the past few weeks by coming in a bit below expectations. What's driving this is not an actual decline in claims, but the fact that claims (which normally are increasing at this time of the year) are not increasing. Still, this is good news since it implies that companies on average are a bit leaner and meaner than they have been for some time, and have less reason to lay people off. Relative to the total number of employed (second chart), unemployment claims are showing a modest improvement on the margin. No sign of a double-dip, but no signs either of strong growth.

Meanwhile, the number of people receiving unemployment benefits continues to decline, albeit slowly.


Public Library said...

Read an interesting tidbit about how we are starting to see value deflation rather than price inflation. Easier for people to swallow versus higher prices. Initially that is.

However, both are the same thing and needed to maintain margins, but the result is still inflationary.

We are living in some interesting times. This little fiat experiment is going to hit overdrive one of these days...

Benjamin Cole said...

PL and Scott Grannis:

From the Department of Labor, 11/4:
"Unit labor costs in nonfarm businesses decreased 0.1 percent in the third quarter of 2010, because productivity grew 1.9 percent while hourly
compensation increased 1.8 percent. From the third quarter of 2009 to the third quarter of 2010, unit labor costs declined 1.9 percent."

If memory serves, labor costs are about 60-70 percent of total business costs. Add to that that all commercial rents--industrial, retail, office--have been falling.
My rough guess is that we are talking about 70 percent-80 percent of business costs being down in the last several years.

Just how are you going to get inflation if business costs are going down, not up?

And aggregate demand remains very soft?

Benjamin Cole said...

(SEATTLE) – As the U.S. housing market slips into its 17th consecutive quarter of decline, a new report warns that the housing crisis may reach depths not seen since the Great Depression.

According to third-quarter Zillow Real Estate Market Reports, home values have fallen 25 percent since peaking in 2006, a drop reminiscent of the Great Depression era, which saw a 25.9-percent drop in home values over five years.

Real estate is in a depression. I don't see how we can inflation with sinking real estate values.

Public Library said...

Completely myopic viewpoint. That is how you miss the forest for the trees Benjiman.

We exploded the real estate market from 2001 - 2007 and it needs to correct further before it can rebuild on a solid foundation.

In the meantime, every other asset on the planet is moving up in $ terms. You will see in short order prices rise across the board for everyday stuff. Or you will simply get less of said stuff for the same price.

Either way, inflation is on its way despite the deleveraging that will last a decade.

Liquidity is as abundant as water. But just like salt water, not all liquidity provides the same nourishment.

Benjamin Cole said...

I will try to find my glasses, but in the meantime, could you (or Scott) answer the question?

How do we get inflation when 80 percent of business costs are going down, not up, and aggregate demand is weak?

How is that a recipe for inflation?

PS: How long have you and Scott been predicting bad inflation to come?

Unknown said...


Why the spreads are higher than in May sell off, is this because of 30 years bonds price falling?

McKibbinUSA said...

Regardless of what the "unemployment" figures seem to say, "employment" in the US continues to plummet since 2000 -- more at:

Employment to Population Ratio

The US is increasingly likely to become a bedroom community should the number of jobs as a ratio to the total population continue to dive. Is the US about employment opportunity, or not...

McKibbinUSA said...

PS: Can anyone seriously argue that California is not suffering from structural unemployment...?

Scott Grannis said...

FM: 10-yr swap spreads had been trading at very depressed levels until QE2 started heating up. Now they are getting back to some semblance of "normal." I think the latest move to higher spreads is tied to the rise in Euro swap spreads, which in turn is being driven by PIGS problems (lately Ireland).

Benjamin Cole said...

Dr. M:

I can argue that CA is suffering from structural unemployment.

If demand went up, especially for real estate, lots of people would become employed. It was about five years ago that L.A. restaurants had "help wanted" signs on their doors. In this town, that means something.

Nothing has changed so much in the last five years, except we lack for demand.

Public Library said...


It can take a long time for monetary meddling to fully take its toll. Keep watching this space.

Why do we need more houses? We need the price to drop further and the banks to write down the assets so prices clear at a level consistent with non-interventionist markets.

We aren't there yet but one day will will arrive at the final destination, intervention or not.