By Karl Smith
No sooner did I confess to a stall than did the stall disappear. As of this week, the long term trend in New Claims for Unemployment has reappeared. We are moving down steadily again.
Offline I’ve had a couple of people ask me whether this obsession with employment charts borders on technical analysis. Are we just reading in a bunch of voodoo?
I don’t think so. Unlike stock prices, there isn’t even a theoretical reason to believe that the economy will move to equilibrium instantaneously. The economy is a big ship. It doesn’t stop or turn on a dime.
What I am trying to do is get a handle on whether the ship seems to be slowing or accelerating and at what pace. From that we can calculate how long it will take for her to change direction.
At one point it had looked as if the economy had hit a snag. What sort of snag I wasn’t sure. Perhaps money was too tight. Perhaps uncertainty had not declined enough. Perhaps the stimulus was weaker than we thought. Perhaps state and local governments had finally run out of room to head off disaster.
The point is, any snag would take time to show up, and so by watching the data we ought to be able to get a feel for whether or not we have hit one long before it becomes clear exactly what the snag is.
Now its looking increasingly likely once again that the snag was something temporary. Changes in layoff timing perhaps. I am not sure. But there is stabilization. The chart below shows the improvement in the new claims data.
There seems to be stabilization around a weekly decline of 5.5K in New Claims. At this rate it will take 23 weeks for us to reach 384K a month in New Claims for Unemployment insurance. That is the rate at which I estimated the payroll series should start growing. This is quite a bit darker than I had originally hoped.
The false dip in July made it same as if a 10K per week improvement rate was realistic. That would have meant only about 14 weeks at the time and so we would be heading towards employment growth right now.
As it stands my best guess would be April 2010.
The Long View