Initial claims for unemployment insurance dropped to 545,000, a decline of 12,000 from an upwardly revised total of 557,000 last week, providing a net improvement of 5,000. The four-week moving average fell by 8,750 to 563,000 (7,000 decline net of revisions).

As you can see in the chart below (from we are well off the highs set back in April, but after a rapid improvement in May and June, progress has seemed to come to a halt. We are most likely moving to the plateau stage that we experienced following the last two recessions.

In both of those cases, initial claims stayed at an elevated level, but off their highs for well after a year past the official end of the recession. While it is nice to be over 100,000 lower than at the peak, a level of 545,000, or even 500,000 is not good enough. A year ago we were at 447,250 (4 week average) and the economy was still on-balance losing jobs.

While there is not an exact correlation between the level of new claims and net adds to employment (even during the giddiest parts of the Clinton boom there were almost 300,000 new claims) there is obviously some relationship.  The economy probably needs to see the four-week average get down below 400,000 before it can be given a clean bill of health. We are a long was away from that.

Continuing claims (one-week delay) moved the other direction, with an increase of 129,000 to 6.23 million. That actually understates the increase, since last week’s totak was revised up by 13,000. That does not tell the whole story (and news outlets that stop there are doing you a serious disservice).

Regular state claims run out after 26 weeks. Six months ago the economy was near the peak of its job losses. Many of those people are leaving the rolls for the wrong reason — because their benefits ran out, not because they got a new job.

Fortunately for these folks, there are a couple of extended benefit programs where the Federal government picks up the tab (two-week delay). The two major programs are helping 3.577 million people, and increase of 32,000 on the week.

Most likely most of the people in that difference are now in for some serious financial pain, with no unemployment benefits coming in and no job. I seriously hope that I am wrong about this and they have found jobs, but hoping will not make it so.  For hundreds of thousands, even those extended benefits are likely to expire soon.

So what are people supposed to do when they have no job and their unemployent benefits have run out? Well, the best thing that could happen, obviously, would be for them to get a new job. However, businesses are simply not hiring.

That is actually a bigger part of the problem right now than busnesses laying off people. What jobs that are available tend to be at the very low end, the “flipping burger” type. Even those are scarce as witnessed by teenage unemployment rates of over 25%. For a middle-aged person with a college degree, taking a menial near-minimum-wage job with no benefits is not exactly a great solution. It sure will not put the kids through college.

Presumably by this point, they have also run up their credit card balances. If they have any equity in their houses, they will have tapped it — but given the number of people who are underwater on their houses, that is a pretty rare breed these days.

These people are at very high risk of defaulting on their credit cards, leading to higher charge-offs at the major credit card issuers like Capital One (COF) and American Express (AXP). They are also likely to cause a second wave of foreclosures, or people who just stop paying the mortgage and wait for the sherriff to show up at the door, in effect becoming bandos in their own homes (or what used to be their homes).

Still, I suspect the market will see the decline in intial claims as being good news. It is, just simply not yet good enough.

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