Initial Claims for Unemployment Insurance rose by 6,000 last week to 401,000. This was slightly better than the expected level of 402,000. Last week’s numbers were revised upwards by 4,000, so one could see it as a increase of 10,000.
While the upward revision and the week-to-week rise are not what we want to see, it does show that last week’s huge drop was not a fluke. Last week was the lowest level since the start of April. In the report, the Department of Labor did not point to any unusual factors this week, so it is a fairly clean number.
Being below 400,000, as we were in February and March, signaled the start of much more robust job growth, such as we saw in March and April. If the current level can be sustained or even improved upon (OK, that is a big IF) this could be signaling better job growth in October. It comes too late to have an effect on the September jobs report due out tomorrow, as it will reference the middle of the month.
Unemployment Remains at 9.1%
Unemployment held steady at 9.1% in August despite no net job growth. The participation and employment rates actually ticked up ever so slightly, but they were coming off the lowest levels since 1983. No net jobs, plus an increase in the participation rate, should have equaled an increase in the unemployment rate, but the employment report is composed of two separate surveys.
The household survey was much more upbeat in August than was the establishment survey. However, the establishment survey is generally considered the more accurate of the two.
The 4-Week Moving Average
Since claims can be volatile from week to week, it is better to track the four week moving average to get a better sense of the trend. It fell 4,000 to 414,000. It is still well above the psychologically important 400,000 level, but moving closer to it. Over the last year, the four-week average has dropped by 39,000 or 8.6%, and off 36% from the mid-2009 peak.
While the economy has been technically out of a recession since June of 2009, the recovery has not been very effective at putting people back to work. Corporate profits have recovered nicely, but not jobs. The big question is: can we get below the 400,000 level and stay there? There are a lot of pressures slowing the economy, with a more concretionary fiscal policy at all levels of government at the top of the list.
The forces of fiscal contraction are scheduled to become far more intense starting on New Years Day. Thus even if we do manage to continue to see improvement over the short term, we might find the better levels hard to sustain next year.
Economy Still…Officially…Growing…
The economy is growing, but very slowly, and while private sector job growth in the first eight months of this year are almost double the job gains of the first eight months of 2010 (1.162 million vs. 626,000), it is not enough to put a dent in the huge army of the unemployed. Those gains have been offset by a faster pace of government layoffs (290,000 vs. 73,000).
The August employment report was worse than expected, and even worse than the back-to-back disasters that were May and June. In August, the private sector created just 17,000 jobs, offset by the loss of 17,000 government jobs.
The unemployment rate was unchanged at 9.1%, but the employment rate, or the percentage of the population over age 16 actually working, rose to 58.2% from 58.1% in July. The increase was good to see, but July was the lowest level since 1983, and at that point the movement of women into the labor force was not yet complete.
The first graph (from this source) shows the long term history of the four week average of initial claims.
So why is the 400,000 level so significant? The next graph shows why. Historically that has been the inflection point where the economy starts to add a lot of jobs. It layers over the monthly gain or loss in private sector jobs (red line, right hand scale) and total jobs (blue line). Unfortunately the automatic scaling did not put a line at zero for the job growth line, so you will have to eyeball it a bit.
Notice the strong inverse correlation between job growth and initial claims, and how when the blue initial claims number is below the 400,000 level that job growth is strong. OK, it is not that an increase from 399,000 to 400,000 is all that much difference than from 397,000 to 398,000 or from 402,000 to 403,000, but big round numbers are psychologically important, especially when that round number is near a historical inflection point.
The four-week average staying above the 400,000 level is a discouraging, but not unexpected, sign. We are making progress though. The current level, if we stay here for a prolonged period of time, keeps us in the purgatory of a pseudo recovery.
Declining continuing and extended claims numbers are a good thing, but only if people are leaving the rolls for the “right" reason. If they are leaving for the "wrong" reason — because the benefits have simply run out — the declines are not really good news (even if they do help reduce the budget deficit); they are just a reflection of millions of people slipping into poverty. Hardly a thing to celebrate.
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