Thursday, April 3, 2014

Claims: more improvement on the margin

This remains the worst/weakest recovery ever, but the economy is nevertheless improving on the margin, and that's what counts.

Initial claims for unemployment continue to decline. Over the past year, initial claims have fallen by about 10%. They are not too far from reaching historically low levels. The pattern of claims is following the traditional one: declining as the economic fundamentals improve. There is no sign here of any deterioration, which means the economy is likely to continue to grow, albeit rather slowly (2-3%), and jobs are likely to continue to rise (by about 200K per month on average).

Unemployment insurance is a valuable social safety net, but if it's too generous it can retard the recovery of the economy by creating disincentives for the unemployed to find and accept jobs. Congress took pity on those who lost their jobs during the Great Recession and voted a huge and unprecedented "emergency" extension of unemployment benefits. That program expired at the beginning of this year and has so far not been renewed. On the margin, this has created stronger incentives for 1.35 million  unemployed to find and accept a new job. That ought to translate into a somewhat stronger economy in the future. There are still some 3 million receiving unemployment benefits, but that number is declining at the rate of about 7-8% per year.

Announced corporate layoffs, as tabulated by the folks at Challenger, Gray & Christmas, have fallen to very low levels, which means corporations have done just about all the cost-cutting that needed to be done. The other shoe yet to drop is a pick up in hiring, which I believe has been sluggish because businesses have been plagued by uncertainty about the future, weighed down by heavy new regulatory burdens, and hobbled by high corporate tax rates.

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