From the looks of the initial claims series of today’s unemployment claims report you would think that the worst of the explosive run-up period in unemployment is now behind us… and it may very well be…BUT…
It’s important to recognize that after reaching its peak at the end of March, initial unemployment claims have been in a sluggish decline with the 4-week moving average still remaining 56% above the level seen last year.
Worse yet, next week’s report will very likely show a notable jump up in initial unemployment claims as we reach the second typical seasonal unemployment spike (… see the non-seasonally adjusted data below… spikes every year at mid-January and again at mid-July) for the year.
But the initial unemployment claims data is just a very sensitive, near-realtime barometer of health of the job market while the actual state of the job market is really a function of the health of firms.
As earnings season unfolds the potential for the widespread healing of U.S. firms will either strengthen or weaken while the consensus view of a second half “recovery” either becomes more certain or, in the event of a string of disappointments, is abandoned.
In the event that a strong “V”-shaped “recovery” didn’t just fire off right on the back of this historic period of economic decline (… really an unlikely outcome in my opinion) then it’s very possible that the second half of 2009 will be very and continually disappointing.
Further, and more importantly, firms will likely need to go back for a second significant round of additional layoffs (the first round having occurred last fall through early 2009).
In this event, the initial unemployment claims should be expected to start to capture this job cutting activity in earnest in early September.
Will the second round of downsizing turn out to be as intense as the first?… it would be unusual BUT with the economic conditions so weak and unemployment already so elevated and the vicious-cycle ramifications so great, all possible outcomes still appear to be on the table.
There is the very real chance that the second half consensus realization will not just be one of disappointment but one of real uncertainty.
The stock markets could fail a re-test the March lows… some bell-weather firms could show prolonged weakness (much like homebuilders have performed since 2006… just continually weak…) … the federal government could be forced to acknowledge the charade of the bank stress tests and even engage again in bailing and stimulating…
All would equate to severe loss of confidence and where we go from there is nowhere good.
