In case you have not heard, first time claims for unemployment insurance popped by 4.1% last week to 479K.
“Surprise rise in jobless claims casts pall on the economy”… so read the headline on Reuters. The headline on Bloomberg noted the “unexpected” rise in jobless claims, to a three-month high, no less. Why are headline writers so apparently shocked by this event?
To be honest, we are shocked by their shock.
Accepted opinion in the market has it that the credit recession that began in December 2007 ended sometime last summer, even though the National Bureau of Economic Research (NBER) has yet to officially declare it to be. However, in fairness, no one ever accused the NBER of being quick on the draw.
On the other hand, if the US is indeed out of the recession, then is it unreasonable to expect some progress on the jobs front by now? Today the Bureau of Labor Statistics (BLS) releases its guestimate for the change in nonfarm payrolls for July. According to the whisper number the market is looking for another decline of between 50 and 75 thousand. (Update: Coverage of Friday's July jobs report.)
Keep in mind, the only reason why economic forecasting was invented was to make astrology look respectable. To wit, the monthly numbers from the BLS are prone to (at times egregious) revisions two months after the fact. Thus, let’s not get too hung up on the absolute figure this morning… because we just don’t know what it is going to be finally revised to, in October.
That said, we do know how to follow a trend. In this regard, it is hard to look forward to this morning’s release with any degree of optimism… especially in light of those “shocking” weekly jobless claims.
Consider that over the last thirty years when the economy was growing, the weekly claims averaged 354K with a very low error of ±1.3K. In the previous three recessions (7/81 to 11/82, 7/90 to 3/91 and 3/01 to 11/01) the jobless claims averaged 487K, but with a higher error of ±6.9K. As far as the last recession goes, if we accept that it ended last summer, then the claims compare favorably relative to the historical metrics, i.e., 478K, but with a very high error of ±12.6K.
So far so good, but here comes the part that is hard to reconcile: Since the alleged end of the recession last summer, weekly jobless claims are averaging 490 ±6.0K! Thus, jobless claims this recession averaged 1.8% below the previous three recessions, but through the recovery claims are averaging 0.7% above.
Now consider this: over the last four weeks claims averaged 459K. For the corresponding four weeks at this point in the recovery from the double-dip recession in December 1983, claims were already down to 370K. Bottom line, jobs are very tough to come by. At the current pace we are not going to see initial jobless claims down towards the long-run mean of 354K until September 2011!
Here at The Schork Report, we are thinking that perhaps this is why the NBER is still gun-shy?
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.