Back in September, I wrote a little rant about initial jobless claims and their relationship to job growth:
Some time ago, Prof. Brad DeLong of Berkeley, thinking aloud with graph, drew a line across the 1991 and 2001 recessions and recoveries, making a "note to self" that it appeared that Initial Jobless Claims post those recessions had to decline to 400,000 or less before payroll jobs were added. Thus, mused Prof. DeLong, it must be so as well, post this "Great Recession." This "note to self" was subsequently repeated by Bill McBride at Calculated Risk, from which it has now been picked up and repeated at Prof. James Hamilton's site, Econbrowser. It is well on its way to becoming Holy Writ.Indeed, the Holy Writ was subsequently repeated by such luminaries as Prof. Mark Thoma of Economist's View, Nobel prizewinner Prof. Paul Krugman, and by Mike Shedlock a/k/a Mish, who went even further, saying:
Let me say first of all that I have the highest respect for all 3 of the above gentlemen. Nevertheless...
IT IS WRONG.
The 1991 and 2001 recessions were very mild. Peak initial jobless claims in those recessions were 501,250 and 489,250, respectively. It would be nuts to think that jobs would be added to the economy anywhere near the 500,000 high water mark in jobless claims from those recessions.
The 1973-4 and 1981-2 recessions are much better comparisons.... In the case of the recoveries from both of those recessions, payrolls started to grow as the ievel of initial jobless claims crossed 500,000, not 400,000.
Weekly claims have to drop to about 400,000 to be at a point that is normally consistent with the economy adding jobs. I question whether normally applies.
I should point out that Prof. Delong was a good sport, going so far as to repost my rant at his blog, and to drop by here and comment that he hoped I was right.
With 3 of the last 5 months showing job growth, and jobs having bottomed in December and retested that low in February, here is how it actually panned out:
November +64k jobs, 492k average initial claims
December -109k jobs, 474k average initial claims
January +14k jobs, 478k average initial claims
February -14k jobs, 467k average initial claims
March +114 jobs*, 447k average initial claims
Initial claims dropped below 500k during the week of November 21. The average for the period November through February, at the bottom of employment, was 478k initial claims. Even including March in the average only drops the average to 472k initial claims. In short, the jobs numbers bottomed when initial claims dropped below 500,000 to about 475,000, not to 400,000 - not exactly as I had predicted, but a lot closer than the rest of the econoblogosphere.
You may file this under 'even a blind squirrel finds a nut from time to time' but hey, a little credit here! You're reading the right blog.