Friday, March 19, 2010

A Closer Look at Initial Unemployment Claims

Yesterday I mentioned I was concerned with initial unemployment claims. After a period continuing improvement, claims have moved sideways/slightly higher. Here is a chart of the data.

Let's take a deeper look at this statistic.

First, note the boxed area which indicates that a reading below ~350,000 is the sign of an economy in the middle of an expansion. Therefore, we're already about 130,000 above that level. Also note the last time we saw this number over 600,000 was in the early 1980s.

After that recession (the early 1980s) , it took about a little over a year to get below the 400,000 level. Let's compare that to the current environment:

The number has been decreasing for a little under a year and we're a bit below the 480,000 -- about 80,000 above the 400,000 level. In other words the pace of improvement is behind the pace of the 1983 expansion. In comparison,

The pace of recovery of the 1990s and 2000s recession shows that job losses stayed above the 400,000 level for at least a year, yet the recovery continued.

In other words, initial jobless claims above 400,000 is not fatal to a recovery. But, a continuing period over 400,000 is probably confirmation of a "jobless" recovery. This is consistent with where job losses are occurring -- over 70% of total job losses are in manufacturing (where automation is replacing employees) and construction (thanks to the housing correction). In short, there is little reason to see strong improvement in the areas where we've seen massive job losses.