Another update on the labor market and another reason to worry.
The offending statistics Thursday come in the morning's news on initial jobless claims, which rose sharply last week to 573,000. At this point, nobody should be shocked to learn that the lines at the unemployment offices around the country are growing longer by the week. Nonetheless, the rapid increase is striking, as our chart below shows.
Even by the negatively skewed standards of late, last week's 58,000 rise in new filings for unemployment was unusually large —the highest weekly advance, in fact, in more than three years.
No less worrisome is the ongoing advance for continuing jobless claims. The advance number for the week through November 29 is 4.429 million: up 338,000 from the previous week and up 68% from a year ago.
In short, more people are losing their jobs and more people are collecting jobless benefits for longer periods of time.
The obvious message here is that the negative momentum in the labor market has a head of steam and looks set to run on. The good news, if we can call it that, is the possibility that "technical factors" boosted the numbers last week. As MarketWatch.com reported Thursday.
Several technical factors could have boosted initial claims last week, a Labor Department spokesman said. The week after Thanksgiving is traditionally the one with the biggest increase in first-time claims, and the government's seasonal adjustment factors may be overstating the increase this year.
Even so, no one should mistake the larger trend underway: broad and deep job destruction in the U.S. economy and increasingly throughout the world. The ramifications are being felt everywhere, from lower retail sales to falling commodity prices. As Reuters reports, retail sales in November suffered their biggest drop in five years. Meanwhile, the International Energy Agency now predicts global oil demand will contract this year for the first time since 1983, via Bloomberg News.
The basic connection is clear: Job destruction ultimately leads to demand destruction, which in turn brings lower prices. This is an especially potent relationship in economies that depend heavily on consumer spending, as the U.S. does. The primary fuel for consumer spending is, of course, employment income. Given the magnitude of the labor pains, it's assured that lower prices and lower demand will be the norm for some time. There's a lag effect, after all. The men and women who sign up for unemployment benefits today are sure to cut their spending tomorrow, and for as long as they're out of work.
Today's varied economic ills are the byproduct of events from the past weeks and months. By that logic, the continuing layoffs today will bring negative reverberations to the economy well into 2009.
At some point the negative momentum stops and a new equilibrium for the economy emerges. The various efforts by the government, now and in the future, will bring that day of a new equilibrium and stability closer than it would otherwise be sans intervention. But it's too soon to make reasonable assumption about timing. It's still unclear how much power this tidal wave has, although even casual observation suggests this is one heck of a perfect storm.