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Thursday, January 21, 2010

Well, We'll See

Initial unemployment claims for the week ending Jan 16th are reported at 482,000, with the prior week's claims being revised to 446,000. Labor says that this is due to a backlog of claims from the holiday period, and doesn't reflect an actual surge in claims. If so, the prior trend was an illusion. The four week average is around 450K.

A lot of this is in the seasonal adjustment - the prior week's actual claims were 804K compared to Jan 16ths actual claims of 650K, which the magic of seasonal adjustment converts to the the numbers given above. Since initial claims were considerably higher last year, I am puzzled by DOL's explanation, although I do not dispute it.

It is hard to understand what these numbers really mean over time, especially since the population and covered employment has changed a great deal over the decades. I made you guys a graph to give a little perspective.

Covered employment are the job accounts reported to DOL by the states. The green line takes 13 week average of covered employment and expresses it as a 13 week percent change. In reality, the changes shown on the graph really occurred centered about three to four months earlier.

The purple line represents seasonally adjusted initial claims as a percent of each week's covered employment. The bluish line is the same, but not seasonally adjusted.

As you can see, a small change in initial claims produces a large change in covered employment, and this recession's change is far more serious than that of the 91 or 01 recessions'. Indeed, it now appears somewhat more severe than the 82 recession. The reason the small change in initial claims corresponds with such large changes in covered employment is less the jobs being lost than the sudden drop in job creation during recessions.

However, one takeaway is that the rate of initial claims we are currently experiencing is still one associated with recessions. Here I drop the covered employment so that I can show the claims in greater detail:

The great thing is that one can now plausibly argue that we are entering a period of post-recession blahs. The bad part is that if we are entering it, we have just done so, and the situation may be very fragile indeed.

That is why I am concentrating so much on small businesses; what will decide whether we are going up or down will be more job creation restarting than the level of claims. Restructuring (aka layoffs) in the larger companies will continue for another year.

Without further comment, here is the list of states reporting increases in claims of over one thousand for Jan 9th:




State Supplied Comment



No comment.



No comment.



No comment.



No comment.



No comment.



Increase due to holiday shutdowns.



No comment.



Layoffs in the automobile, construction, trade, and manufacturing industries.



No comment.



No comment.



No comment.



Layoffs in the construction, trade, and service industries.



No comment.



No comment.



No comment.



No comment.



Layoffs in the construction and trade industries.



Layoffs in the construction and service industries.



No comment.



Figures are based on a six day processing week, as well as layoffs in the transportation and service industries.



Layoffs in the service and manufacturing industries.



Layoffs in the construction, trade, and manufacturing industries.



Return to a five day workweek, as well as layoffs in the manufacturing industry.



Layoffs in the manufacturing industry.



Layoffs in the textile, furniture, chemical, primary metals, and service industries.



Layoffs in the construction, trade, service, and manufacturing industries.



Layoffs in the construction, trade, and service industries.



Layoffs in the construction, trade, service, and manufacturing industries, and agriculture.



Layoffs in the trade, service, real estate, and manufacturing industries.



Return to a five day workweek, as well as layoffs in the construction and service industries.

You call this a period of "post-recession blahs". I think an alternate interpretation of this is that it is a period of decision. Following recessions in the past we have a period of blahs followed by growth. This has led to a model of recession/job loss-blahs- growth/job creation. Just because this has been the interpretation of the past cycles does not mean that we are post recession. Blahs have preceded growth, and thus the smart observers think that blahs cause (or at least are a harbinger of) growth.

A different interpretation could be that after every recession we reached a point where the economy was tentatively ready to recover unless it received unexpected bad news (aka government intervention). In the past, no intervention has come, so the economy grew. The variable of government has been constant following recessions in the past, so we discount it in the current recession. If, however, the government does intervene, this period of blahs will not be "post-recession blahs", but rather "mid-recession blahs". I think we saw a similar thing during the Depression and Japan's current downturn.

Just because our interpretation has held true in the past does not mean that our interpretation is complete. As I see it, that is the different between the "smart" optimists and the thinking pessimists.
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