Thursday, March 22, 2012

Ongoing improvement in the jobs market

The three-year downward trend in seasonally adjusted unemployment claims continues, as shown in the top chart. New claims for unemployment are down more than 10% from the same period last year, and relative to the size of the labor force, claims today are lower than at any time prior to 1997. As the bottom chart shows, the number of people receiving unemployment insurance continues to fall as well: there are 15% fewer people "on the dole" today than at this same time last year. The number receiving "emergency" claims has fallen by more than half (over 3 million people) since the high of early 2010. There is undeniable progress being made on all fronts.

As the pace of layoffs approaches levels that are about as low as they are likely to get, it is very difficult to believe that the pace of hirings won't continue to increase.

And with no sign whatsoever of any increase in claims or any deterioration in the jobs market, it is also very difficult to believe that the economy is on the verge of another recession.

Should another recession happen, however, it would almost surely be very mild, because employers have done just about all the cost-cutting they need to do. The economy has spent the past three years adjusting to a huge oversupply of housing and a big increase in energy prices, by shifting resources massively away from residential construction and into new areas such as the booming oil and gas industry. What other shocks might we have to adjust to? Shocks always come out of the blue, so it's hard to rule them out at this point, but we've all been subject to shocks of one kind or another in the past four years, and markets are still priced to grim conditions, as evidenced by today's 2.3% 10-yr Treasury yield, and below-average PE ratios despite record-high corporate profits. When you're braced for the worst, it's easy to deal with minor setbacks. In short, I think the economy is far more likely to continue to improve than it is to suffer renewed deterioration.

Anecdotally, I'm hearing that mortgage originators have seen a big increase in new applications in the past week or so, which if true, is likely a response to the recent uptick in the 10-yr Treasury yield. A "buy now before mortgage rates go higher" mentality may have been triggered. I'm also seeing scattered reports that housing prices in several areas of the country appear to be on the rise.


Benjamin Cole said...

Per usual, neat wrap-up by Scott Grannis.

I do worry that the absolute size of the employed labor force is not much larger than many years back. We could employ many more millions in the nation, and we should.

Not through federal programs---but through monetary stimulus, that encourages private-sector growth.

Tons of slack out there, and inflation is dead. The Japan scenario is still too present. After all, the DJIAS is where it was in 1999, and property is trading at 2006 levels. Wages have done nothing for years. Interest rates have hit zero bound. All familiar territory in japan.

Anonymous said...

Interesting read on Seeking Alpha. Maybe I'll start paying more attention to the ASA Staffing Index:
The Only Surprise In Employment Numbers Is That People Are In Fact Surprised

Benjamin Cole said...

"NEW YORK — FedEx says the U.S. and global economies aren't growing as strongly as expected. It expects a mild recession in Europe this year.

That outlook on a conference call with analysts overshadowed a strong third quarter for the Memphis, Tenn., company. Online holiday sales helped FedEx more than double its profit in the three-month period ended in February.

The world's second-largest package delivery company is predicting growth of 2.1 percent in the U.S., compared with a forecast of 2.5 percent growth by leading economists surveyed by The Associated Press. It dropped its forecast for global growth to 2.3 percent from 2.9 percent."

Oh boy, the Fed and ECB could do a lot, lot more.

William said...

The FED could do a lot more by getting the FED Funds rate up to 1% so savers could earn a little something - although still less than inflation.

There is two $ Trillion on savings deposits, corporations have another two $ Trillion in cash (just in their USA accounts) and money market funds have another two or three $ Trillion earning nothing.

What is 1% of six $ Trillion added to earning and potential spending? Sixty (60) $ Billion?