Thursday, January 07, 2010

Mid-Cycle Meltdown!: Jobless Claims January 07 2010

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims increased by 1,000 to 434,000 claims from last week’s revised 433,000 claims while “continued” claims decreased 179,000 resulting in an “insured” unemployment rate of 3.6%.

Today’s results, though still significantly elevated, continues to indicate that the descent to both initial and continued claims is continuing in earnest resulting in an almost textbook peak.

On the other hand, it's important to note that the majority of the claimants falling out of the continued claims series have ended up on the federal extended benefit and EUC 2008 rolls so caution should be used when interpreting nature of the peak in continued claims.

At this point, we are either in the "post-crisis" recovery or the "eye before the storm" of a double-dip.

Could the worst of the job-shedding be behind us? Is a major disappointment shaping up for 2010?

We will have to wait to find out.

Clearly, careful attention needs to be paid to these indices to see how they reflect the state of the job market as we move further into 2010.


The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

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.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

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 and vice versa.

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.

Until late 2007, one could make the case (as Fed chief Ben Bernanke did on several occasions) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced 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.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth had been very weak, not succeeding to reach trend growth as had been 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.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and resulted, instead, in a mid-cycle meltdown.