Yesterday, the Department of Labor released their latest read Joblessness showing “initial” unemployment claims declining 15,000 and “continued” claims declining 52,000 resulting in an “insured” unemployment rate of 2.0%.I’m going to add the weekly claims to the rotation of recurring economic data and will more fully develop the post over the coming months but for now, take a look at the following charts as they are very telling.
First, keep in mind that the consensus notion of “mid-cycle slowdown” is still alive and well (in fact Bernanke was speaking on the subject just last night) and for good reason as you can see by the first several charts.
Historically, unemployment claims both initial and continued (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.
The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.
As you can see, acceleration to claims generally precedes recessions.
Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).
In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.
So, looking at the post-“dot com” recession period we can see the telltale signs of a potential “mid-cycle” slowdown and if we were to simply reflect on the history of employment as an indicator of the health and potential outlook for the wider economy, it would not be irrational to conclude that times may be brighter in the very near future.
But, adding a little more data I think shows that we may in fact be experiencing a period of economic growth unlike the past several post-recession periods.
Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.
One notable features of the post-“dot com” recession era is that, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.
I think there is enough evidence to suggest that our potential “mid-cycle” slowdown, having been traded for a less severe downturn in the aftermath of the “dot-com” recession, may now be turning into a mid-cycle meltdown.
