Unemployment: We're Not Out of the Woods Yet

Thursday morning's update on new filings for unemployment benefits suggests that the improving trend since the spring for this series remains intact. Initial claims for jobless benefits dropped 33,000 for the week through October 3, the Labor Department reported. That cuts initial claims to the lowest level since this past January, as our chart below shows.

More good news comes in the way of continuing claims, which dropped to 6.04 million, the lowest level since April.

Good news, to be sure, in terms of the general trend. The bad news is that both of these numbers are still elevated in absolute terms to an extent that reflects broad economic weakness. And signs of a quick turnaround are still scant. Repeating our long-running mantra: the labor market's recovery will be unusually slow in the months and quarters ahead and so we must be cautious in expecting too much too soon in terms of an economic recovery worthy of the name on Main Street as well as Wall Street. For an economy that's heavily dependent on consumer spending, which in turn relies on a robust labor market, the U.S. faces a headwind of some magnitude.

That said, the recovery process, albeit a weak and tentative version, remains in play. The general decline in initial jobless claims has been telling us so for months. As we discussed back in March, this metric is worth watching for its predictive powers, as it relates to the finale of recessions according to the economic history. So far, it's hard to argue otherwise.

The good news, however, may already be baked into equity market prices, as we suggested Wednesday. Meanwhile, there is the great unknown about the future path for the labor market proper, which promises (threatens) to be the overwhelming subject going forward, even if the crowd isn't yet fully focused on this fate.

In fact, this is hardly a new subject in the dismal science, as the trend in job creation has been discouraging for 25 years. Five years after the end of the 1981-82 downturn, nonfarm payrolls jumped by more than 16% (a gain of 14.6 million jobs). Five years after the end of the 1991 slump, payrolls were higher by 9.5% (a rise of 10.4 million). In the wake of the 2001 recession, nonfarm jobs advanced by less than 3% (or up by 3.8 million) after five years.

The fading power of the U.S. economy to generate new jobs in absolute and relative terms in post-recession periods over the past generation is well documented. Call us crazy, but there's nothing on the economic scene at the moment that suggests this trend is about to change for the better. In fact, it's likely to get worse.

Perhaps it's time to acquaint ourselves with the finer points of a jobless recovery. Let's hope not, but if that comes to pass, a round of rewriting the economic and financial yardsticks and rules of thumb as we know them may be looming.

In the meantime, today's initial jobless claims tell us that the recovery in October 2009, whatever that ultimately means, is alive if not necessarily kicking. In fact, we're confident that the inflation-adjusted third-quarter GDP number will be modestly positive when the initial estimate is released on October 29. If so, that'll be the first expansion in real GDP since 2008's second quarter. Unfortunately, the practical implications in a revival of GDP this time threaten to be quite unsatisfying for the immediate future.

Comments

[Daniel Eskin:]

What I don't understand is why everybody is saying that less unemployment claims is good news. It's still really damn high. This is terrible news. On an absolute basis, unemploymend in the country is at like 9.6% (heard on a podcast this morning) and until unemployment claims drop to a significantly lower number than the last few months I would definitely agree we're not out of the woods.

Check out my blog at www.youngandinvested.com

Oct 08 12:28 PM

[Chandragupta:]

No recovery here, absolutely no. It is just that fewer people lost their jobs than what the economists predicted. Does not mean things are improving.

Oct 08 01:03 PM

[bbro:]

Watch out next week for a very good jobless claims number.....

Oct 08 01:32 PM

[Confuse-ous:]

Well of course GDP will be a little bit higher. How much money did we print and pump into the economy? But are actually we any wealthier? Not even close.

Oct 08 03:43 PM

[Curious Bys...:]

What scant "good news" there is, is just artificial government BS. Anytime you have the printing presses going 24/7 for nearly a year, how can you not have some "signs" of "recovery"??? In the end it's all garbage and backed by NOTHING. As soon as the government funds run out, so does the "recovery". This is ridiculous and is only going to lead to an even greater imbalance between the haves and have not's.

Oct 08 04:15 PM

[Malkiel:]

In the longest term, the post-industrial US economy needs to see several elements come into play which affect how downturns and investment are handled:

--employee ownership and investment need to be enhanced and unions need to be partnered into the boards of public companies so that decision-making in downturns will be biased toward maintaining the infrastructure rather than turning to desperate measures like offshoring for short-term financial gain;
--Shareholders need their rights strengthened so that management cannot get away with enriching themselves at the expense of the profitability of the enterprise (how many executive compensation packages exceed the entire quarterly or yearly profits of the company?)
--Shareholder loyalty needs to by boosted by shareholder-friendly arrangements like quarterly dividends; this can also be an important incentive for employees to accept company stock as part of their retirement and compensation packages.
--The public sector's valuable role as a "steady state" jobs engine fulfilling vital needs to be acknowledged and we need to find the comfortable level of taxation which should support it, without endless and futile ideological battling against it.

Measures such as the above are about giving the parties involved in the enterprise a vested interest in keeping alive the parts which will be needed during the recovery. If we want to move away from the obsession with short-term financial gains driving our economy then we need to change the culture of business by rearranging the relationships between the players...

Oct 08 04:48 PM

[Pat C:]

"Perhaps it's time to acquaint ourselves with the finer points of a jobless recovery. Let's hope not, but if that comes to pass, a round of rewriting the economic and financial yardsticks and rules of thumb as we know them may be looming."

Amen brother, we have a social issue brewing big time.

Oct 08 04:54 PM

[conceptwizard:]

This past week the BLS released the September unemployment statistics and they worsened as usual, as America enjoys its recovery.

U-1–Those unemployed 15 weeks or longer, as a percent of the civilian labor force was 5.4%.

U-2-Job losers and persons who completed temporary jobs, as a percent of the labor force was 6.8%.

U-3-Total unemployed, as a percentage of the civilian labor force, the official unemployment rate, 9.8%.

U-4-Discouraged workers 10.2%.

U-5-Total unemployed plus discharged workers, plus marginally attached workers 11.1%.

U-6-Total unemployed as a percent of the civilian labor force 17%.

If the birth/death ratio is removed, U-6 is in reality 21.3% total US unemployment. The estimate is that 824,000, more jobs may be extracted from the payroll count for the 12-months ended next March. Such a revision would be the biggest since 1991. The BLS is underestimating job losses deliberately and has been for a long time. That would mean September’s loss would be some 300,000 not 263,000.

Such a revision would put job losses not at 4.8 million but 5.6 million jobs.

Oct 08 07:14 PM

[Gary A:]

Geithner and Summers bailed out their cronies and watched as jobs were lost. They did nothing. They should have bailed out the balance sheets of people who spend, rather than the balance sheets of banks that don't lend.

They will let the dollar drop through the floor and the consumer will be hurt by high commodity prices, yet another attack by the bobbsy twins upon the average Joe.

Oct 08 07:36 PM

[Moon Kil Woong:]

GDP upticks mean very little when they don't oupace inflation let alone commodity bubbles. Likewise, although the trend is down all the commenters are right in that it still looks terrible. Yes, the sky is not falling, but really, does anyone want us to clap?

Keep putting your bets on commodity bubbles and companies which export. Don't bet on long term Treasuries or that domestic consumption will save the day.

Oct 09 01:28 AM