Thursday, August 19, 2010

500,000 New Jobless Claims is bad. But...

- by New Deal democrat

Since Bonddad hasn't posted on this (yet), allow me to make a few comments:

1. 500,000 new jobless claims is bad. No doubt about it. Since it is a "short" leading indicator, this just adds more confirmation that 3rd quarter GDP will be roughly zero, and could easily be negative.

2. It also means that nonfarm payrolls for August will probably stink as well. The "breakeven" point between non-census gains and losses this year has been about 475,000-480,000.

BUT... We don't know what sectors the new claims are coming from.

3. The census is laying off workers more quickly than most thought. By August 7, they were down to 75,000 employees. About 500,000 census workers have been laid off in the last 13 weeks, and some of them depending on the state qualify for unemployment benefits. This will be almost over in a few weeks.

4. The Congressional aid package to the states was not big enough and it was late. We are now at the weeks when thousands of schoolteachers nationwide are finding out that they are unemployed, and you can bet that nearly 100% of them are filing for benefits. This too will probably tail off once September begins.

5. We are down about 100,000 housing starts since April. Construction workers and real estate sector finance workers have already suffered layoffs. Whether those will abate or not is unknown, but they certainly came quicker than was the case in 2006-07.

6. BP has been laying off cleanup workers in the Gulf states. This is obviously temporary too.

If the increased layoffs remain concentrated in the census and in areas where the stimulus expiration has hit, there will be a reversal in September. The real danger is whether the sectors laying people off have expanded beyond that. We won't know that till the August jobs report in two weeks.

In that regard, if you want to be worried, worry about the negative Philly Fed report this morning. If outright weakness is spreading to manufacturing, that is an ill omen indeed.