Seeking Alpha
Macro, economy, Professor
Profile| Send Message|
( followers)  

From Monday's "The Gartman Letter":

Amidst all of the talk of rising weekly jobless claims being so egregiously large, let us try to put what has gone on thus far in historical perspective: Jobless claims are modest, at worst, compared to past periods of protracted economic weakness. Average weekly jobless claims are hovering around 350,000. In the recession of 2001 they bottomed at or near 470,000. In the recession of 1990-91, they bottomed at or near 500,000 (see top chart above, click to enlarge).

These last two recessions pale, however, when compared to the truly difficult recessions of the 1970s and 1980s. For example, in the recession of 1981-82, initial jobless claims rose to a stunningly high 680,000, while in the short but severe recession of 1980, claims touched 620,000. In the Arab Oil Embargo "inspired" recession of 1972-74, jobless claims rose to 550,000.

We shall not argue that claims will not move higher than where they stand presently, for almost certainly they shall. But let us keep things in perspective. Back in the mid-1970s the US population was approximately 215 million; now it is 303 million, or 140% of what it was. Thus the 550,000 "claims" in the recession in the early 1970s would be the rough equivalent of 775,000 now, and we are but half of that. Today's "claims" are bad, and for those making the claims they are horrid, but in the great scheme of things they are modest... indeed, surprisingly so.

The top chart above shows initial jobless claims (4-week moving average) and the civilian labor force from 1987 to 2008. The labor force has increased by 30% since 1987, so the frequent comparisons of today's jobless claims of around 350,000 to previous periods and previous recessions is biased and flawed, as Dennis Gartman suggests.

The bottom graph above (click to enlarge) shows initial jobless claims as a percent of the labor force, to adjust for the increase over time in the population and labor force. May's 0.238% level (368,500 claims / 154,534,000 labor force) is below the 0.27% to 0.33% range of the last recession in 2001, and way below the 0.30% to 0.40% of the 1990-1991 recession.

Using the percentage from the first month of the last recession (0.26646% in March 2001), and the current labor force of 154,534,000, jobless claims today would have to be close to 412,000 before the current economy would in as much trouble as the economy in March 2001, when the last recession started. Further, the current level of 0.238% is actually below the .257% average since 1987.

Source: Adjusted for Labor Force Growth, Today's Jobless Claims Are Below Average