First Time Jobless Claims & The Economy
For the fourth time in the last 5 weeks first time jobless claims have risen.
WASHINGTON (AP) — The number of newly laid-off workers filing initial claims for jobless benefits rose unexpectedly last week, evidence that layoffs are continuing and jobs remain scarce.
The rise is the fourth in the past five weeks. Most economists hoped that claims would resume a downward trend that was evident in the fall and early winter.
I think that we are seeing the effects of ending Cash For Clunkers and other programs. Sure it was great for awhile where care sales were moved forward, but now that people have bought the cars, demend has become slack.
The Labor Department said Thursday that new claims for unemployment insurance rose by 8,000 to a seasonally adjusted 480,000. Wall Street economists had expected a drop to 460,000, according to Thomson Reuters.
The four-week average, which smooths fluctuations, rose for the third straight week to 468,750.
The number of people continuing to claim benefits was unchanged at 4.6 million. That data lags initial claims by a week.
But the so-called continuing claims do not include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government.
More than 5.8 million people were receiving extended benefits in the week ended Jan. 16, the latest data available, up from about 5.6 million the previous week. The extended benefit data isn’t seasonally adjusted and is volatile from week to week.
Calling the recession over may have been premature. And yes, I realize that unemployment is a lagging indicator. But consider that while personal income and disposable income are rising, personal consumption expenditures seem to be slowing down. Yes, GDP grew at 5.7% (advanced estimate) for the fourth quarter, but as James Hamilton notes, the fundamentals aren’t all that good.
Three-fifths of that Q4 GDP growth came from the fact that businesses were drawing down inventories more slowly than they had the quarter before. Firms sold $8.5 billion more goods (at a quarterly rate) in 2009:Q4 than they produced, and met those sales by drawing down inventories by $8.5 billion. This reduction in inventories counts as negative investment spending of -$8.5 billion at a quarterly rate (or -$34 B at the annual rate these numbers are typically reported) for purposes of calculating fourth-quarter GDP. Firms sold $34.8 billion more than they produced in 2009:Q3, which amounted to negative inventory investment of -$139 B at an annual rate for Q3. Since this component of investment spending went from -139 to -34, it counts as positive growth when you compare Q3 GDP with Q4 GDP. This mechanism alone contributed 3.4 percentage points to the 5.7% growth rate for real GDP reported for Q4.
In other words, investment decreased at a slower rate and made up the bulk of that 5.7% (about 60% of it). This not exactly what you call great news. Its like being on a ship and the captain comes on the intercom and says, “Great news, we are now sinking slower!” Or to put it yet a third way, suppose this was the only thing affecting a change in GDP, we’d have 3.4% growth in GDP because businesses are drawing down inventories to the tune of $8.5 billion in quarter four vs. $34.8 billion in quarter three. That isn’t something to consider great, and would be an explanation of why we see first time jobless claims rising.
Of course, we can’t continually draw down inventories without eventually starting to restocking them. So, there is hope. And as Prof. Hamilton notes, plugging in the new data into his recession indicator index the index is at 37.6% which indicates that the expansion probably started in 2009:Q3. And if the GDP numbers hold up for one more revision the index will likely fall below the 33% threshold for declaring the recession over and weak growth starting in 2009:Q3. But we can probably expect weak growth for sometime.