Submitted by Edward Harrison of the site Credit Writedowns
Tomorrow, we all await the unemployment number with anticipation. In all likelihood, it is going to be a nasty number edging us ever closer to the 9.0% I once saw as a sort of upper range number for 2009.
Meanwhile, jobless claims for the week ended March 28 are out. The reported numbers of 669,000 initial jobless claims and 5.7 million continuing claims are both seasonally adjusted (SA) and they are both high than the previous week. 4-week SA averages are also higher.
On digging deeper, here is my analysis:
Looking at the non-seasonally adjusted (NSA) numbers, things actually look a bit better. Initial claims rose from 590,000 to 594,000 claims while continuing claims fell by 70,000 to 6.37 million. (Click here to see why I do not use the reported SA numbers.)
But, I actually like to look at trends, so I am taking the 4-week NSA number and comparing it to last year. Below is the chart.
As you can see, the graph clearly indicates that the change in initial jobless claims has peaked (temporarily?). These peaks are not lagging indicators, they are usually coincident or leading indicators. Here are the dates and numbers for peaks in changes in initial claims going back to 1967 when the data began:
- 5 December 1970 at 120,000 (the recession ended in November 1970)
- 1 Feb 1975 at 361,000 (the recession ended in March 1975. Note: Apr-Jun 1974 showed positive GDP growth)
- 7 Jun 1980 at 238,000 (the recession ended in July 1980. Note: this was the first in a double dip recession)
- 30 Jan 1982 at 202,000 (the recession ended in November 1982. Note: Apr-Jun 1982 showed positive GDP growth)
- 23 Mar 1991 at 154,000 (the recession ended in March 1991)
- 20 Oct 2001 at 165,000 (the recession ended in November 2001)
I hope this makes it pretty clear that the last few recessions show changes in initial jobless claims as a coincident or leading indicator. Moreover, the peak in this cycle right now stands at 327,000 on 31 Jan 2009, which was 2 months ago. Today, we are at 275,000, quite a bit lower. Now, unless the SA weekly initial jobless clams start hitting 700,000 – 800,000 this spring and summer, we have already seen the peak here.
I should also point out that changes in the unemployment rate and initial jobless claims are also not the lagging indicators that the unemployment rate itself should be considered.
So, is this a pause in the data? It is hard to say, honestly. But, my sense from previous cycls is that we have seen the peak here. But, this is a completely different economic cycle, the likes of which we have not seen in quite a while. So, the data comparisons back to 1967 could be misleading. And maybe layoffs at a bankrupt Chrysler or GM will make things much, much worse – something that the Obama team should remember when those deadlines come due.
I point all of this out because the punderati in the econblogger space is very negative these days, but the data are not all pointing in that direction.
Source
Unemployment Insurance Weekly Claims Report – U.S. Department of Labor
38 comments
Comments are closed.
Nah, things are wonderful out there. What you need to do is instead of writing about stats is get out there on foot and start talking to those getting laid off much less those that have been looking for work and then report back to us. Yeah, that’ll take some effort. You will then have a much different perspective about all these numbers you banter about. Granted, what else do you have to work with sitting in front of a monitor? Again however, the stats right off the street is the real number and they paint a different picture.
Stats and all the attendant BS that goes with it are just that, BS and as you say particularly in this uncharted situation. Everyone has an agenda to tweak the numbers to suit their objectives. And that is about all it’s worth.
AM
Ed, you wrote:
“So, is this a pause in the data? It is hard to say, honestly. But, my sense from previous cycls is that we have seen the peak here. But, this is a completely different economic cycle, the likes of which we have not seen in quite a while. So, the data comparisons back to 1967 could be misleading. And maybe layoffs at a bankrupt Chrysler or GM will make things much, much worse – something that the Obama team should remember when those deadlines come due.”
I would add that it’s a race to avert a long, nasty debt deflation spiral.
If global authorities do not get a handle on the situation soon, it will get worse in the second half of 2009.
So far, the stock markets are in rally mode, signalling the worst is behind us, but this could just prove to be another bear market rally.
The global destruction that this crisis has caused is unprecedented. Weak global aggregate demand does not bode well for a new bull market in stocks.
It will take years before economies fully recoup and get back on solid footing.
cheers,
Leo
Nothing goes straight up or straight down. Things will get better…before they get much, much worse.
Leo,
I agree 100% that we could be seeing a serious head fake here for exactly the reasons you mention.
Any rebound we get is bound to be cyclical given the present policy response, meaning that all the non-performing assets and need for deleveraging will still be sitting there.
There are still a lot of writedowns on credit cards and commercial real estate to come and that means banks may still have impaired capital eve if Geithner can shift those assets off their balance sheets.
The question is: how much of a head fake are we getting? Are we going to see a relapse come fall? To me, that’s not yet clear. A lot of it depends on the policy response. There has been so much monetary stimulus and transfers from banks to taxpayers that a rebound, what I would call a “fake” recovery is very possible.
In any event, unlike the suggestions by “Anonymous’ who seems cowardly enough not to post under a real name, I do think people should be outraged and angry that we are going through a depression. Unemployment is likely to rise well into the double digits, more people are going to see foreclosure, you even have shanty towns popping up in places like Sacramento. All this in the so-called richest country in the world.
It’s a testament to bankrupt economic policy. And if we don’t use this time to make changes quickly, people like ‘Anonymous’ will have every reason to be outraged.
Edward
“In any event, unlike the suggestions by “Anonymous’ who seems cowardly enough not to post under a real name…”
C’mmmmmmmmmmmon. I’m not cowardly. Trust me. Are you? Posting my ‘real name’ has nothing to do with it. You’re the professional writer and you know that as professional writers use a nome de plume are they then cowardly also? And since when does just posting a real name magically absolve one from spewing potential BS?
Besides all that, what I find disingenous about these stat commentaries out floating there regarding reaching ‘peaks’ and so forth is that it is akin to saying the eye of the hurricane appears to be hovering over us and so the worst is likely behind us. The problem is you admit you don’t even know where the eye is. IOW, you’re way premature in any pronouncement on what unemployment numbers genuinely indicate where we stand in this crisis. In fact if anything the affecting stats that correlate back to unemployment figures are indeed worsening. Here’s just one: CRE is just starting on its downward spiral. There are jobs connected to it. Lots of them. By that one fact alone you’re premature for making any pronouncement at all.
Other than that, Sherlock.
Oh, btw, my real name is Daniel Mason. So I guess that now automatically eliminates me being a ‘coward’. Riiiiiiigggght.
If GM/Chrysler go bankrupt, the nice little graph of unemployment numbers will be shooting off the top of the screen. Meanwhile, people in not so big companies continue to get laid off, under the national awareness.
Also, how much do these numbers reflect the thousands of unemployed no longer receiving benefits, or who have just given up looking for work?
The graph shows that the increase in unemployed as compared to last year has a growth of approximately 290K/4 weeks. For example if 300K people lost their job last year in the same 4 week period, this year 300K plus 290K for a total of 590K people lost their jos this year.
What does that predict?
The graph is a measure of trajectory, measuring the rate of change of unemployed (steepness of the slope of the graph of absolute number of unemployed), not of absolute number of unemployed.
If it stays at that 290K rate into next year at this time it will be a truly unprecedented crisis—much, much worse next year than this. Using the example above, the number of people to become unemployed in the 4 week period next year will be 300K plus 290K plus 290K plus the additional 290, equaling 1170K.
If this graph drops to 0, it simply means that people are being unemployed at the same rate of increase that they were in the previous year. Still bad news–the absolute number of unemployed people is still increasing. Using the numbers above, 300K base, plus 290K this year, plus 290K next year (reflecting same rate of growth), works out to an absolute number of 880K unemployed in that 4 week peirod.
It looks to me that only a strongly negative number is a indicator of an improving economy. Any positive number is a sign of deterioration.
Persistantly high numbers, month after month, are an indicator of a catastrophe where the rate of growth of unemployed is going hyperbolic.
Correct me if I am wrong but this looks like the rate at which people are becoming unemployed is beginning to slow rather than the unemployed are being employed again. There are reasons why you would expect this anyway with respect to the way business planning cycles work. Most businesses will have planned for this year during January and will have worked out and got rid of personnel to fit their plan. Add in an inventory squeeze as payment terms are changed and things ought to improve.
The problem is that those jobs lost in the last two months will result in reduced demand which will not have been planned for. On top of that some redundancies will have been delayed and some companies will go under during the coming months. In other words I would be surprised if there is not an improvement in the rate unemployment is going up short term, but expect it to deteriorate further significantly during the summer. Export figures and the value of the dollar are likely to be key as jobs lost elsewhere in the world feed through slowly to jobs lost in the US.
Here’s the reasoning behind comparison charts instead of absolute numbers:
Spending habits are a response to changes. whether the unemployment rate is 10% or 5%, what is the key trigger for consumer spending is the change in unemployment and the change in real income. So, even if unemployment is high, if real income is increasing and fewer people are filing for unemployment, consumer spending increases.
A lot of people don’t really understand that this is what happens. And this is true for all recessions dating back to and including the Great Depression.
A perfect example is 1933. The recession ended in 1933. The U.S. was still in a depression (the deleveraging had not been completed), yet the economy experienced incredible growth.
See this post for more on that:
http://www.creditwritedowns.com/2009/02/some-tidbits-about-stimulus-recovery-and-the-great-depression.html
The point that Neal is making is right. To get the kind of numbers we are seeing now next year, we would need to see 1 million weekly claims.
And, therefore, the point I am making is that unless this happens, we will see positive GDP growth. Again, this does not mean all is well in the state of Denmark – the 1933 example demonstrates this.
But it does mean that a recession has ended.
People make too much of one or two data points as being a trend and not just noise. Most unemployment offices (and their systems) are overwhelmed with applicants. To make anything of a data point you first must believe the data is truly accurate. And I don’t beleive a “recession has ended” because you make get a statistical increase in GDP unless you’re taling about the next recession soon to follow.
One more thing: the change in initial claims usually peaks before jobless claims peak. That mean the change is decreasing while the claims number is increasing.
At the same time, you would probably see continuing claims doing the same thing meaning the unemployment would be rising. This is why the unemployment rate is a lagging indicator. It continues to rise well after the other data stop rising because businesses react to consumer spending, not vice versa.
This post kind of shows what I am talking about:
http://www.creditwritedowns.com/2008/10/economys-four-horsemen.html
Initial claims is one of the ten components used in the construction of The Conference Board Leading Economic Index (LEI). It has a low weighting, 3.07%, and currently is an outsized contributor relative to its weighting to the LEI decline.
In my opinion, as a stand alone metric, it’s not very useful.
Head fake…Must not have been the extent of corruption as there has been this time.
Does “seasonally adjusted” figures mean that the normal layoffs after the Christmas season don’t cause irregular peaks in the first quarter of the following year?
Ed Harrison: You might want to read commentary more carefully, even from those who sign “Anon,” to avoid the appearance of treating readers disrespectfully.
In my opinion, your commentary on “Anon’s” commentary shows that you misinterpreted both his suggestions and intent. It seems to me that (David Mason?) is both outraged and angry by the economic situation and expressed reasonable skepticism about your analyses and predictions on unemployment rates. Instead of attacking readers who are becoming more bitterly aware of the bias and distortion in gov’t data, you might want to acknowledge the possibility of “GI-GO” in your initial postings.
Merry-will-go-round,
point taken.
David, you have my sincere apology.
reasonable skepticism is a good thing.
Edward
if real income is increasing and fewer people are filing for unemployment, consumer spending increases.
A lot of people don’t really understand that this is what happens.
Over the past 20 years, sure. But the American people have a massive debt load. They also have had the living $#!t scared out of them and realize the accumulated debt needs to (gasp) be paid off — not with more debt via MEW, but with…income. So, that means muted responses to tax cut, stimulus, whatever. And *that* means further down the rabbit hole.
It would seem that whether GM and Chrysler avoid actual bankruptcy or not, survival of the auto industry in any form is going to require some significant shrinkage. Plants are going to close; dealers are going to close. Suppliers are going to go under. We already have more cars than drivers and our streets are choked with traffic; we don’t NEED 16 million new cars a year.
And it does also seem that debt loads are going to be a drag on demand for a while too. And what, exactly are we going to be demanding, anyway? I don’t know about you, but I don’t have room for a lot more crap in my life. I already feel like I’m drowning in things.
Just a request to Yves and the Guest Posters: Naked Capitalism was a much more user friendly site when the “Links 4/2” remained at the very top of the blog instead of buried way down after the guest posts.
Thanks
Ed
The govt data is fudged beyond comprehension. There were many blogs carrying stories about how the home sales data, new home sales and durables goods data were MASSIVELY seasonally adjusted.
I don’t see how unemployment has peaked when we the BLS revises their numbers by 30% or more in some cases (Dec went from 524k to 650k+). I suggest you take the adjusted data a few months down the line to get a real idea.
The unemployment figure reeks of anomalies, they don’t count free lancers (10-15% of the workforce in parts of the country) and people who’ve become disgruntled and stopped looking or those who’ve run out of unemployment benefits.
According to the BLS NSA U6 unemployment is 16%. Shadowstats is showing 19.8%? I reckon the figure is the average of the two.
If we are using data it is wise to compare apples to apples. There are so many damn adjustments to all the data, with their imputations and hedonic adjustments and expectations.
My logic is simple, Biggest Credit Boom in history = Biggest credit bust. Past credit booms have ended in high unemployment, depressions, decade long stagnations, political unrest as well.
We are saying the biggest transfer of wealth in the history of the world from the poor and formerly middle class to the rich. I can bet that the same time next year and the year after people will still be writing about unemployment peaking.
viv,
I saw those distorted numbers and also have written about them:
http://www.creditwritedowns.com/tag/government-statistics
I was going to say if you are really interested in dodgy numbers and how to reconcile then with reality you might like John Williams site Shadow Stats:
http://www.shadowstats.com/
But, I see you’ve seen his stuff. And he points out that the real unemployment rate is at depression levels right now.
As you say, the fakery comes into play through revisions, seasonal adjustments and methodology changes which my first link points out.
But, as for the claims data, the raw numbers are much harder to fake than the seasonal numbers which is why I am using them.
My baseline view has been that we are in a depression (http://www.creditwritedowns.com/2009/02/we-are-in-depression.html) and will be through 2009 – though this may change. Nevertheless, the possibility of a major depression or cyclical rebound can’t be ruled out either.
This post serves to note that there are some data points which point to a cyclical rebound as a distinct possibility for Q4 or Q1 2010.
As a number of writers have commented (Wolfgang Munchau), things can’t keep deteriorating at the rate they did in 2008, or there won’t be an economy.
The fundamental problems in the world economy remain and portend an even weaker recovery than the historically weak one we got after 2001.
There is to much capacity worldwide and to little aggregate demand.
Hi,
Beware of the unemployment number, some historical perspective and a better measure here:
The Misleading Nature of the Unemployment Statistic
@Ed Harrison…..1:31pm
“Merry-will-go-round,
point taken.
David, you have my sincere apology.
reasonable skepticism is a good thing.
Edward”
We’re cool, Ed. I like your stuff overall.
DM
DM…..4:52pm
We're cool, too, Ed Harrison. I'm impressed by your graciousness and dignity per yr 1:31pm reply. If you approach your data analysis with the same degree of ethics & humility, we are all lucky to have your postings.
DM and Merry,
I appreciate your comments as well. If I’m out of line, I try to recognize it and make amends. The same goes for the data. If what I am saying makes zero sense or I make a call that proves wrong, the right thing to do is point it out and move on.
So, in this case, you can be pretty sure that I will be coming back to this topic in due course.
Tomorrow morning on Credit Writedowns, I will probably be making a fairly bullish statement due to some discussions I have had with other analysts.
The long and short of it is I am switching from a small d deflation view to a hedged, we may see a cyclical (fake) recovery in Q4.
By the way, you should note that Yves and I both have been looking for the deflationary scenario as a likely outcome and I believe she still holds more to that view while I am moving to toward a growth outlook.
There are a couple of things to consider. Some have been mentioned up thread.
The first thing is that if people will recall there was a large spate of layoff announcements in the last week or two of January. Those layoffs didn’t actually happen then. For those size layoffs that was simply the acknowledgment of the WARN Act notices going out which means those affected were still employed for 60 days (at least) and won’t hit the unemployment rolls until last week into the upcoming weeks.
The second thing that is still in progress is that production capacity is down, and the ability to service and/or roll-over the debt that was used to finance that production capacity is strained. We have yet to experience any kind of significant corporate defaults on debt to this point which only means that is looming on the horizon. Otherwise I would be quite curious at just what kind of recession/depression this really is as we would be in a realm of existence never experienced before if that doesn’t happen.
The feedback loops should further spiral everything down.
One always has to keep in mind that even during the Great Depression corporate earnings and profits were still rising for companies and various companies were have record profits and earnings. Commerce still continues and there will still be winners and losers.
What I think we will see is the unwinding of the consolidation that occurred throughout the last 3 decades and that should actually present investment opportunities and market opportunities for others. So if you have companies disgorging themselves of a line of business or a geographical area that can produce opportunities for those that can make it on the earnings and profits that those castoffs and throwaways provide. Realizing, of course, that not all castoffs and throwaways are unprofitable just that they were necessary because of the need to raise cash or that the current corporate cost of running that line or area was too high for that entity or required an investment that the company felt was better made elsewhere.
And that is where I see the recovery taking place. Where the jobs will come from and where the investment opportunities will come from with growth and competition potential. With thousands of companies coming into existence just as thousands of companies had been consolidated out of existence over the past 3 decades.
But first, the destructive portion of the process has to take place – well actually it has to begin.
And maybe layoffs at a bankrupt Chrysler or GM will make things much, much worse -…
Yeah, “maybe”. Especially for those laid off.
I don’t think posting anonymously is synonymous with cowardice; or is that the case only when you don’t like what was said? Anyway, just reply to the content and don’t worry about whether it was put there by “Anonymous” or not (people should not post anonymously because it makes a thread harder to follow, not because it’s cowardly — just pick some text moniker for crying out loud).
I don’t think anyone expects unemployment to keep getting worse indefinitely. The question is, once the rate of decline in employment levels off, how soon will it recover?
One might ask: What about the cause(s) of this recession vs previous ones? What catalysts might cause a pickup in demand strong enough to significantly reverse the huge retrenchments we see (e.g. Japanese exports cut by half y-o-y in February)? What if pre-recession levels of demand and consumption were substantially due to phony wealth (what about real wages this decade?) effects like bubble house prices and the pillaging of home equity?
“I point all of this out because the punderati in the econblogger space is very negative these days, but the data are not all pointing in that direction.”
Really? Because it seems to me there has been a plethora of bottom calls over the last couple weeks, and all sorts of posts just like this, not calling a bottom per se, but kind of hedging that way, and at the same time pointing out all the negative sentiment…
There seem to be a lot of egos on the line in blogdom that want something to point back to in case this is the bottom. “See, I saw that!”
Obama telling us we’ve reached the “turning point” has kind of sewn it up for me. How many bottoms were called by the President?
The only thing missing was the “Mission Accomplished” banner.
Edward,
I’m probably not the person you want coming to your defense—but why are you apologizing?
I don’t know whether I agree with your conclusions…but it was a good post. If anything you were bringing out another point of view.
The first guy’s comments were absurd. You are commenting on the unemployment situation and he’s telling you…”What you need to do is instead of writing about stats is get out there on foot and start talking to those getting laid off much less those that have been looking for work and then report back to us.”
Are you kidding me? No reasonable person could read your post and think you were commenting that “it’s not that bad for the unemployed”. It was a ridiculous post.
And then you have Merry go round with this bit…”Ed Harrison: You might want to read commentary more carefully, even from those who sign “Anon,” to avoid the appearance of treating readers disrespectfully.”
No, actually Ed was correct in calling that guy out. Yes, there are lots of anon posters…fine. But they aren’t being negative, either. If a commenter is going to be negative, then put up a name—even if it’s an internet moniker. That way people can call you out the next time you’re also being too negative….
[I get called out all the time–and deservedly so by people who disagree. The fact I’ve put in my name, though, also makes it easier for people to simply ignore what follows, since they won’t like it anyways—which is also as it should be.]
You made a good post. You put a lot of effort into it, and it showed. You shouldn’t apologize for anything.
Hey, what was shadowstats.com latest unemployed % figure? I think the site was projecting 20% plus near term, must be close now by their figuring which is just old style government extrapolating.
Unemployment Insurance only covers people who’s employers paid in, how’s the other half of the Country doing?
Its all about definitions when it comes to judging data and if anything is to be learned from America’s fall from the financial ledge is that economist should only talk among themselves when sharinge whatever data and ideas about current and future economic conditions. Its such a narrow band of thought that spitting it out for CNN or other media outlets does the public a disservice.
I’m confused. This is a big tangential: if the consumer responds to changes more than absolute values, why does consumer spending pick up before employment? So long as unemployment is increasing (changing in the up direction), one would expect the consumer to remain entrenched. Sure, at some point entrenched consumers will work through “excess inventory” and be forced to go out and buy stuff, but I fail to see how this uptick signals the beginning of a new cycle.
P Schotland,
This is a bit abstract of a response, but here goes:
The way I would look at it is this: say the economy is growing with moderate unemployment. At some point, consumer spending pulls back and causes an inventory build and a needed purge which causes unemployment which then causes more consumer pullback. At some point the purge is enough to right this feedback loop.
All of these things are happening dynamically, businesses are reacting to a reduction in demand, people are reacting to a perceived slowing economy and so on. None of these reactions are perfect. You need enough proof that you need to rein in/increase your spending or cut back/increase production.
Call it a recency effect, but people need to see that things are changing before they change their spending/producing.
The same is true on the way up as well as down. So the inflection points are marked by a reversal in the rate of change of the data. Real earnings declining at a slower rate, real spending declining at a slower rate, Industrial production declining at a slower rate and so on.
But, of course in this cycle, there is the nasty overhang of debt and people like David Rosenberg believe you need to see a slower rate of decline in house prices too. If house prices are still getting crushed, it’s kind of hard to get the economy back on its feet.
krugman commented that dead count bounce was inevitable in all the economic data given the rapid deterioration. He also said the counter punditry would pounce on this of evidence of improvement.
You got that right, bg.
skippy
So who’s deleting comments?
Continuing claims are peaking but that does not mean unemployment has peaked. The maximum period that anyone can claim for unemployment benefits in the US is 26 weeks but most are less (usually 3mths). If the unemployed person remains unemployed after the period, he/she falls of the continuing claims, but should remain on the unemployed list as long as he/she is looking for work (under U1). The sharp increase in claims since Dec 2007 implies that the rate of job losses has increased dramatically. And there has been no hiring to halt the acceleration. If the continuing claims remain this high, and not increase, it means that job losses are matching numbers one quarter behind. The NFP for Nov08 was -597k (assuming the number can be trusted). This should imply a 700+k move in March.