Claims In Uncharted Waters; Is The Labor Market Too Tight?

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Calafia Beach Pundit

As the chart above shows, the hallmark of the onset of every modern recession has been a precipitous rise in new unemployment claims, each time from a relatively low level. Unemployment claims as a percent of the number of people working have now reached a new all-time low: Only 0.17% of the workforce was laid off last week. Is another recession in the cards? Not necessarily. This statistic has been plumbing new lows for decades, and there is no a priori reason this cannot continue or merely stabilize at current or slightly lower levels.

But there is another cause for concern that is not much talked about. If, for example, Trump and the Republican Congress manage to push through a decent, supply-side tax reform package (e.g., one that at the very least lowers marginal rates for businesses and consumers in exchange for limits on and/or the elimination of many deductions, plus fewer subsidies), where will an expanding economy find more workers? There are precious few to be found among the ranks of those receiving unemployment benefits - fewer than ever before.

Meanwhile, the population is growing rather slowly - about 0.8% this year, according to the Census Bureau - and the number of people of working age is growing even more slowly - about 0.6% this year (equivalent to 1.5 million new eligible workers), according to projections by the OECD. At its current sluggish growth pace - about 2% per year - the US economy is on track to add about 2.2 million new jobs this year. Based on just these numbers, it doesn't look like we have enough workers to run a bigger, faster-growing economy.

Don't be surprised if Keynesian economists (which includes many at the Fed) look at these numbers and start worrying about how "tight" the US labor market is, and how

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Scott Grannis was Chief Economist from 1989 to 2007 at Western Asset Management Company, a Pasadena-based manager of fixed-income funds for institutional investors around the globe. He was a member of Western's Investment Strategy Committee, was responsible for developing the firm's domestic and international outlook, and provided consultation and advice on investment and asset allocation strategies to CFOs, Treasurers, and pension fund managers. He specialized in analysis of Federal Reserve policy and interest rate forecasting, and spearheaded the firm's research into Treasury Inflation Protected Securities (TIPS). Prior to joining Western Asset, he was Senior Economist at the Claremont Economics Institute, an economic forecasting and consulting service headed by John Rutledge, from 1980 to 1986. From 1986 to 1989, he was Principal at Leland O'Brien Rubinstein Associates, a financial services firm that specialized in sophisticated hedging strategies for institutional investors. Visit his blog: Calafia Beach Pundit (

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