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.

FILED UNDER: Economics and Business, Government
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Steve Plunk says:

    What I find lacking in all of the analysis is no attention to regional differences. California is likely to stay down because of its housing mess and Michigan because of autos and other problems. Looking at only national statistics homogenizes what are becoming great regional differences.

    My state (Oregon) is very dependent on California’s economy to lift it’s own. With 10% of the population I would think people across the country would be paying closer attention to California and it’s particular set of problems.

  2. Steve Verdon says:

    You’re right Steve, California and Michigan are hurting bad. I heard the the city of Los Angeles is going to be laying off more people. That is bad when local unemployment is likely around 12%. Government jobs and expenditures can act as an automatic stabilizer, but only if the jobs and expenditures are kept…which they aren’t.

    And part of the problem is that the local and State governments are fiscally insane. They pay and pension plans for state and local workers rival private employers. In some cases public employees retire with pay and benefits equal to 100% of their final pay at the time of retirement. These pension plans are defined benefits not contributions so their liabilities are huge and with an economy that is in recession and less and less goverment revenues coming it, it was simply insanity to make pension plans work that way.

    But hey! Government, there is a magic pony in there somewhere.

  3. Triumph says:

    I think that we are seeing the effects of ending Cash For Clunkers and other programs.

    I think we are seeing the effects of having a damn liberal foreigner in charge of America.

    The weaker that Obama can make us, the easier it will be for his Moselm, Kenyan brothers like the dictator Adewale Ogunleye to attack us and steal our freedom.

  4. Scott Swank says:

    Steve,

    You have the inventory component of the 5.7% gdp off a bit. Some 3.5% of that was re-stocking the inventory that was drawn down in Q3. Absent that (one time) 3.5% we only had 2.2% (or so) structural gdp.

    Calc Risk covered this a couple weeks ago.

    http://www.calculatedriskblog.com/2010/01/q4-gdp-beware-blip.html

    Scott

  5. Michael Reynolds says:

    There is some sort of disconnect here in CA. I realize this is purely anecdotal, and I further realize that I’m personally in an odd sort of business and somewhat insulated. But just to look at on a daily basis, life here in Orange County isn’t exactly terrible.

    Contrasted with a year ago, restaurants seem more full. Malls have lost some stores but opened some others. On weekends we can’t find parking in some malls. Traffic may be a bit worse despite higher gas prices. We don’t see beggars — not anything like we had in NC even back during the boom times. Rents are dropping but my neighborhood has few For Sale signs and the Sheriffs aren’t throwing my middle-class neighbors into the street. Kids still pack expensive tutoring operations. The Avatar IMAX still sells out. There are an awful lot of German and Japanese luxury cars in line at the full-service car wash.

    From every outward appearance life here is no more distressed than it was in Chapel Hill back during good times, and God knows this place is infinitely more prosperous than the Italy we saw while living there.

    It’s a damned strange economic disaster that doesn’t show more outward signs.

  6. Steve Verdon says:

    Scott,

    I don’t even see the 3.5% in that post. Also, the BEA says you are wrong.

    The change in real private inventories added 3.39 percentage points to the fourth-quarter change in real GDP after adding 0.69 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second.

    Also, the calculated risk blog post makes essentially the same point,

    In a research note released last night, Goldman Sachs raised their estimate of Q4 GDP from 4.0% to 5.8%. They cautioned that the “headline will be an eye-popper”, but that this growth is mostly due to inventory changes: “More than two-thirds of our estimated increase comes from a sudden stabilization in inventories”. They also noted “anything between 4½% and 7% is possible given the volatility of the inventory data”.

    In other words, the large GDP number is largely due to a sudden deceleration in drawing down of inventories.

    Note there is NO restocking going on. Note the BEA press release, that inventories are going down. If you are restocking inventories would be going up.

    Michael,

    I’d suggest you leave Orange County, a very…isolated community, to put it nicely, and try going into parts of Los Angeles.

    California has the fifth highest unemployment rate amongst the states. Los Angeles has an unemployment rate of 11.3% (includes Long Beach and Santa Anna). The “Inland Empire” which includes Riverside, San Bernadino and Ontario has an unemployment rate of 14% and was recently at 14.7%. Stockon 17.1% unemployment. Fresno, 16.8% unemployment. Merced, 19.8% unemployment. Visalia-Porterville, 17.5%.

    There isn’t a metropolitan statistical area the includes orange county, but given the demographics, it might be similar to Santa Barbara, Santa Maria, Goleta with its 9.3% unemployment.

    Your comment is like someone sitting in Beverly Hills saying they don’t see why the recession is so bad. Maybe you should start posting under the name Paris Hilton.

  7. Steve Verdon says:

    This report puts Orange County’s unemployment at 9.1%. Not good, but considering the statewide average, it is doing better than many counties/areas. This story notes that Orange County tends to have low unemployment rates as well. Other counties tend to have unemployment rates that are much higher, as in several percentage points.

    Also Orange County is an affluent area, generally speaking, and as such it would be expected that the people living there would have more resources for dealing with recession/unemployment than you might find in South Los Angeles or Compton.

  8. Michael Reynolds says:

    Steve:

    It’s always worse in Compton. No matter what you’re talking about.

    I think the disconnect I’m sensing is about the emotion invested in the concept of unemployment. I wonder if we — at least people my age or older — have a more dire notion of what it entails than is merited.

    There’s enormous wealth in this country and a very high standard of living relative even to many developed countries. Lots of these lost jobs may have been second jobs in two-earner families. That creates a fairly devastating effect on a family in Compton but is a much less scary situation in Irvine. Many of those jobs may have paid for levels of luxury rather than meeting core needs. There’s a difference in kind, not just in degree, between unemployment that results in a person living in the street, and a person forgoing a vacation in Cabo.

    It would be interesting if we had a way to differentiate different types of unemployment. Unemployment that means your kids don’t eat vs. unemployment that means your kids go to a state college rather than Stanford.

  9. steve says:

    I think your basic assessment is correct. I expect a long weak recovery with at least one more dip. People need to replenish savings. The housing inventory needs to work itself out. CRE needs to resolve its issues. Europe is a mess. Oil is always on the brink.

    Steve

  10. Steve Verdon says:

    Michael,

    If a person loses his second job he is not unemployed as he still has his first job.

    A household where the wife loses her $25,000 job while the husband continues to earn $175,000 is not the same as a household where one spouse loses their $25,000 job and the other keeps their $25,000 job. I would think the latter is far more common in the OC than outside of it save for some areas like Santa Barbara, Beverly Hills, etc.

    I think the disconnect is that you live in Orange County. A place noted for its wealth and exclusivity. Whereas the majority of the rest of California is not so lucky, obviously.

    Consider that the median income in Orange County is $73k as of the 2007 estimate. The median household income for a family in Los Angeles by contrast is a bit under $53.5k. Also, there are about 1.5x as many families living below the poverty line in LA county as in Orange County. The educational level is, unsurprisingly, highly different. About the precentage of people in Irvine with a bachelors degree is more than 2x the percentage of Los Angeles County. High school graduation rates:

    LA Co. 70%
    OC 80%
    Irvine 96%

    Part of the disconnect is that there is considerable difference between life in the OC, on average, and life in LA, on average, and for that matter life in the rest of California.

  11. Gerry W. says:

    Jobs? We’ve been hearing for years that free trade is good. That we did not need the jobs. Now all of a sudden the politicians say we need jobs. Unbelievable. We have been watching this in the Midwest for a long time.

    http://www.toledoblade.com/assets/pdf/TO51488727.PDF
    http://www.nysun.com/comments/60366
    http://www.washingtonpost.com/wp-dyn/content/article/2009/11/09/AR2009110903705.html?wprss=rss_print

    and this week

    http://www.portclintonnewsherald.com/article/20100202/UPDATES01/100202014/Plastics-company-to-close

    Now, I live in a town of 16,000 and we lost three factories. That is 2000 jobs. I suspect we have over 30% unemployment.

    Now, the politicians say that we need to support small business. It won’t work in my town. You need the factories of employed people to have the traffic for small business. Washington still does not get it. Still waiting after all these years.

  12. john personna says:

    Michael Reynolds:

    There is some sort of disconnect here in CA. I realize this is purely anecdotal, and I further realize that I’m personally in an odd sort of business and somewhat insulated. But just to look at on a daily basis, life here in Orange County isn’t exactly terrible.

    I’ve been doing some work for a more south-county client this week. It seems to me that the 405 in reverse direction (south in the AM) is a bit less crowded these days. I left at 4pm today and got home in 20 minutes!

    I actually drive by the same OC soup kitchen now and then … long lines, but then maybe they’ve been for a few years now.

    So, I’m pessimistic like Steve … with different confirmation biases overlaid, of course.

  13. john personna says:

    California’s VMT (Vehicle Miles Traveled) is only through 2008, but as I’m sure you know there was an unexpectedly large reversal in that year:

    http://www.dot.ca.gov/hq/traffops/saferesr/trafdata/monthly/VMTHIST1.pdf

    I betcha 2009 will show a similar drop.

  14. anjin-san says:

    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

    Steve, you might want to put down the bong and read the paper:

    January 2010 Sales: Ford Spikes 24% on Strong Sales Across the Board

    Read more: http://wot.motortrend.com/6603613/industry-news/january-2010-sales-ford-spikes-24-on-strong-sales-across-the-board/index.html#ixzz0edaZocjZ

    Common consensus is that both the economy and the automotive industry are slowly beginning to turn around, and if Ford’s performance in the first month of 2010 is any indicator, it’s going to be a good year. Blue Oval sales jumped an impressive 24% over January 2009

  15. john personna says:

    Anjin, I think you should look at the composite graph:

    http://www.calculatedriskblog.com/2010/02/us-light-vehicle-sales-108-million-saar.html

    The article you site is a marketing piece, choosing its framing. They say “jumped” since January 09, but the roller coster graph shows that we might be coming off the stimulus a bit.

  16. john personna says:

    doh! site/cite. it’s the fingers, man. muscle memory.

  17. anjin-san says:

    The article you site is a marketing piece, choosing its framing

    Yes that is an industry cheerleader. So lets go to the Wall St. Journal for more.

    By MATTHEW DOLAN And KATE LINEBAUGH

    The auto industry closed one of its worst years in history on a positive note, with U.S. sales rising about 15% in December and many executives predicting a gradual recovery in 2010.

    Ford Motor Co., Toyota Motor Co. and Honda Motor Co. all reported substantial sales increases in the year’s final month.

    http://online.wsj.com/article/SB10001424052748703436504574640222725513080.html

    Pint is that there are some pretty clear signals that demand is not “slack”

  18. Steve Verdon says:

    Anjin-san,

    In looking at the graph at Calculated Risk I think you should take your meds. Clearly there demand is slack given that sales are still way below what they were before the recession.

    Gerry,

    Jobs? We’ve been hearing for years that free trade is good. That we did not need the jobs.

    Ahhh were back to this I see. Yes, free trade is good. It is why we have free trade between states. If it isn’t good between nations why is it good between states? And nobody ever said we don’t need jobs. That is just a flat out lie.

    Now, I live in a town of 16,000 and we lost three factories. That is 2000 jobs. I suspect we have over 30% unemployment.

    Now, the politicians say that we need to support small business. It won’t work in my town. You need the factories of employed people to have the traffic for small business. Washington still does not get it. Still waiting after all these years.

    What you want is a hand out. A subsidy. You want to take money from everyone else to keep those factories open. You’ve got this bizzare notion that by walling ourselves off we can be better off. However, both economic theory and empirical evidence do not support this conclusion. Whenever trade barriers have been enacted the workers rarely benefit. Prices go up, less goods are produced and the firms pocket the profits.

    The only exception is corporatism like we had in the early 1930s here in the U.S. The government basically formed large oligopolies to raise prices and wages. Of course, the higher wages induced more people to seek jobs…jobs that weren’t there thus slowing down job growth. That is why unemployment never dropped out of double digits during the 1930’s.

    That is what you advocate Gerry a corporatist state where government and big business run things. Of course, why you think government leaders and big business leaders will care all that much about workers is beyond me.

  19. Gerry W. says:

    Steve,
    I have never talked about protectionism or a handout. We have seen our jobs go away for years and now the politicians say we need jobs. So which is it? They obviously don’t know what is going on in the country and they have no idea of how to fix it.

    I have no problem with free trade, however we have to deal with our problems. Tax cuts do not solve our problems. We sat with 8 years of tax cuts and saw our jobs leave. It is globalization that has taken our jobs and/or will reduce wages. It is some 2 billion cheap laborers in the world that dictate that. Political ideology does not solve this problem. Today states clammer for extension of unemployment benefits, cash for clunkers, and casinos for every state. This is not progress, it is desperation. Even if a person can find a job, it will pay less. It has to as we have to compete with the rest of the world. The politicians don’t want to talk about it. In fact, most economists and politicians just talk about creating jobs. What we have seen is that we are losing the middle class.

    What I have said in the past is that we need to invest in our country, in our people, and in the future.

    Invest in our country: That is energy independence doing everything from nuclear energy, natural gas in trucks, off shore drilling, and alternative energy. This is a win for jobs and security. A new air traffic control system can save 12% of fuel for airlines. The more profit they have, the more planes they can buy. Again, it creates jobs. High speed rail, as much as I cringe on the price, will produce jobs.

    Invest in your people: That is mandatory vocational training. Those that only believe in the constitution will cringe at this. On the other hand, we have to recognize globalization.

    http://www.hudson.org/index.cfm?fuseaction=publication_details&id=5656

    Invest in the future: That is federal research grants to universities and businesses so that we can create new sciences and future jobs and stay ahead of other countries. Right now there is no new jobs to go to.

    http://www.newsweek.com/id/222836/output/print

    All this in fighting within our country is not doing us any good. Our “financial enemies” is the globalized world. We can keep fighting among ourselves and have more welfare, or we can fix our own problems. If not, we will have more welfare. Having said all this, tax cuts and the constitution and other beliefs are good within reason. But to sit on ideology and not doing anything, then it all makes no sense. In fact, people can just sit around and not pay taxes.

    That is what you advocate Gerry a corporatist state where government and big business run things. Of course, why you think government leaders and big business leaders will care all that much about workers is beyond me.

    I only advocate jobs for people. Small towns cannot diversify, they rely on factories, and small business relies on factories. People cannot live on self reliance without work, cities and states need the tax revenue, and I am sure our government needs the revenue. Now, we can sit on ideology and do nothing or we can do something. We see one party that just wants to spend and the other party that just wants to sit on ideology. Both are ruining this country. What ever happened to pragmatism?

  20. anjin-san says:

    Clearly there demand is slack given that sales are still way below what they were before the recession.

    Golly Steve, you mean demand is less today than it was during a credit bubble of historic proportions? That is some really deep insight you have there.

    Your original point, for what it is worth, was

    I think that we are seeing the effects of ending Cash For Clunkers and other programs.

    implying that demand is “slack” as a result of cash for clunkers. Well, demand may not be what it was before the recession (duh!) but recent numbers are encouraging, and Ford’s January numbers are well up, year over year, from an admittadly anemic 2009. Does not mean we are anywhere near out of the weeds, but it is encouraging, and clearly there is pent up demand that some people are acting on. There are even some auto plants opening back up.

    Thanks to hot sales of the subcompact Chevrolet Cobalt, 2,200 people are back to work at General Motors’ Lordstown Assembly Plant in northeast Ohio. GM announced this week that they will be joined by nearly 1,100 more this fall.

    http://www.npr.org/templates/story/story.php?storyId=112073669

    Its also worth noting there that if we had listened to some folks, the American auto industry might have largely vanished by now, making it pretty difficult to take advantage of the vast business opportunity that Toyota’s recent woes presents.

  21. Gerry W. says:

    anjin-san,

    One step forward and two steps backward. Ford has hired 1000 people in Chicago, but at less pay and benefits. Just citing one example. It will take some 10 to 20 years to recover for so many people. Everybody is cost cutting and Toyota screwed up. Its tough being in business and also being an employee.

  22. anjin-san says:

    Ford has hired 1000 people in Chicago, but at less pay and benefits.

    Thats not one forward two back. Its a small step forward.