Initial claims for unemployment insurance rose to 434,000, an increase of 1,000. That, however, comes on the heels of a very large drop last week, and both weeks have some holiday distortions in them.
Given the week-to-week volitility in the numbers, it is best to look at the 4-week moving average. There, the news is significantly better. The 4-week average fell by 10.250 to 450,250. Since the 4-week average is well above the level of this week and last week on the single-week basis, it means that the average is likely to fall sharply again next week.
As the graph below (from http://www.calculatedriskblog.com/) shows, the 4-week moving average has been in a steep downtrend since April, and we are now about 30% above peak levels. We are also well below the 528,000 level we were at a year ago.
Unlike the previous two recessions, there is no evidence yet that we are forming a high plateau. This in turn provides hope that this recovery will not be quite as jobless as many people fear. We probably have to see the 4-week average get close to 400,000 to indicate that the economy is, on balance, adding jobs…not there yet, but getting much closer.
The news on the continuing claims front was also mixed. Regular state funded continuing claims continue to tumble, this week falling by 179,000 to 4.802 million this week and down by 400,000 over the last month. Since the peak at the end of June, regular continuing claims are down by 2.102 million. Regular claims are almost back down the the 4.529 million they were at a year ago.
However, regular benefits run out after 26 weeks. In November, half of all the unemployed had been out of work for 20.1 weeks, up from 18.7 weeks in October; 38.3% had been out of work for more than 26 weeks. Clearly just looking at a benefit package that runs out after 26 weeks under these curcumstances is misleading.
After the 26 weeks is over, people move to extended benefits, which are paid for by the Federal government, in large part from ARRA (or Stimulus Package) funds. Combining the two largest programs, there are now 5.440 million people getting extended benefits, an increase of 165,000 from last week.
That’s right: extended claims now exceed regular unemployment benefits. Extended benefits present a bit of a dilemma. On the one hand, if they are extended indefinitely, they no longer become just a temporary cushion, but instead start becoming a form of long-term welfare. On the other hand, without the extended benefits, we would literally have millions of Americans, many if not most of them from the middle class, left with no income what-so-ever.
Starving people in this country is not just unsightly, but also means a lot less customers for Kroger’s (KR). (On the other hand, the social instability that that would cause would probably help stimulate sales for Sturm Ruger [RGR]).
The exteneded unemployment benefits are very effective at stimulating the economy. People get the benefits and go out and spend them, but since the amount is less than the income people are used to, they tend to just spend on the necessities. That is good for sales at Wal-Mart (WMT) and Big Lots (BIG), and therefore good for their employees and the employees of the whole food chain leading to those sales.
Long-term unemployment is a very serious issue in this recession, and all measures of uenployment duration are simply off the charts relative to previous downturns. We will see tomorrow if there has been an improvement on that front.
It will be one of those little details buried deep in the report that will really be as important as the big headline numbers of the unemployment rate and the net number of jobs created or lost in the month.
Overall this was a positive report, but I think people are really waiting to see what tomorrow’s big report (from the Bureau of Labor Statistics, or BLS, brings.
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