Thursday, December 8, 2011

Claims point to a U.S./Eurozone decoupling

Seasonally adjusted claims for unemployment fell to 381K, their lowest level (with the exception of one week last February, which we now know was purely the result of a seasonal adjustment problem) since July '08. Actual claims, however, rose by 151K to 524K. This is the time of the year when companies begin laying off people that were hired earlier in order to meet the demands of the holiday season. So today's news tells us that actual claims rose by less than is usual around this time of the year. We may see a repeat of this in coming weeks, since actual claims will almost certainly rise by much more going into the first week of January, but maybe not by as much as the seasonal factors expect. Firms may well continue to fire fewer people than usual, because they have already pared staffing to the bone, and that is one reason why corporate profits have been so strong.

In any event, the continued decline in the level of adjusted claims is a legitimate indicator that the economy is on a more solid footing. The labor market fundamentals continue to slowly improve, and that is consistent with a lot of other indicators which point to ongoing economic growth of about 3% or so.

Markets, however, are still very fearful that growth fundamentals are on the verge of deteriorating. Eurozone sovereign defaults are widely thought to be the likely catalyst for a sudden and sharp deterioration in global economic activity, and markets fear that it will be very difficult for the U.S. economy to avoid contagion. No one can say for sure that the U.S. can avoid contagion, but so far the U.S. economy appears to be decoupling from Europe, as Europe slumps but conditions here continue to improve.


Benjamin Cole said...

In this particular case, I think the always-intelligent Scott Grannis may be making an error.

The important figure or ratio is the employed labor force in relation to the total population. Also known as the employment to population ratio.

Unfortunately, this was at 63 percent back in 2007, and then sunk like a stone in a sump to 58 percent. in the recession, and then stayed there.

Another way of putting it is that if you walk down the street, one out of 20 people you pass used to have a job and now doesn't. Or, we have sidelined about 8 percent of our workforce, and never brought them back into action.

This is a huge loss of potential output and wealth.

I am not calling for government programs or deficit spending. I am calling for the Fed to get aggressive, especially with inflation so dead and interest rates heading towards zero bound.

Squire said...

The U.S. may not have a contraction but that doesn’t mean it will grow much. I don’t watch the unemployment figure at all let alone weekly unemployment claims. I used to watch total employment. Now, like Benjamin, I watch the employment to population ratio. I view it as an indicator of U.S. economic demand (good) vs. demand for social services (bad).

Fear knows no decoupling.

Squire said...

Maybe looking at private sector dollar compensation to total population would be good, if not better. But there would be a need to filter out the high and low compensation. Doing that analysis is over my pay grade.

If the number of jobs and real dollar compensation is rising it is good. But if it doesn’t rise faster than the population it doesn’t portend economic revival.

As to the ongoing theme: if you don’t expect an economic contraction then dividend paying stocks are good even if you can’t expect capital gains. Someday the cost basis of your dividends will seem very low due to inflation.

IF you don’t expect a contraction.

brodero said...

If you track the 12 week moving average of non seasonally adjusted
jobless claims you will notice not
only is there an improvement in the
moving average compared to last year but you will notice the pace of improvement is even better.

Anonymous said...

For another example of decoupling from Europe, check out today's very good AAR report for November:

AAR November