Initial Jobless Claims Plunge
This week initial jobless claims for unemployment insurance plunged by 35,000 to 466,000. Actually, considering that last week’s number of initial jobless claims was revised down to 501,000 from 505,000, one could argue that the decline in initial jobless claims was more like 39,000. This brought the four-week moving average of initial jobless claims (a better number to watch due to the weekly volatility of the numbers) down to 496,500, a decline of 16,500.
We are now 162,250 below the peak for initial jobless claims set back in April for the four-week average. This is also the first time in over a year that the four-week average has fallen below the 500,000 mark.
Despite the improvement in initial jobless claims, as the graph below (from http://www.calculatedriskblog.com/) shows, we are still above the peak set in the last recession, and just about at the same level set at the peak of the 1991 recession. The good news though, relative to the last two recessions, is that the initial jobless claims numbers are showing no sign of forming a high plateau. That could have some very good implications for the job market.
However, the core of the problem in the labor market this time around is not that layoffs are that abnormally high, but that hiring is abnormally low. (See It’s the Lack of Job Creation, Stupid!) and that once a job is lost, there is a much larger percentage than historically that it will have been lost for good, rather than a temporary layoff. (see Permanent vs. Temporary Lay-Offs).
The good news did not stop with the initial jobless claims data. Regular state level continuing initial jobless claims for unemployment insurance fell by 190,000 to 5.423 million. Those claims run out after 26 weeks. After that, people are moved to federally funded extended initial jobless claims (part of the Stimulus Package), so the continuing claims number does not tell the whole story.
Combining the two largest of the Federal programs, there are an additional 4.179 million people who are getting unemployment benefits. That figure, though, also declined this week, falling by 18,250.
Since the extended benefit program was recently extended, it seems that this is actual good news — news that some people are actually finding new jobs, rather than simply running out of time for even the extended benefit program. That is very good news indeed. People with new jobs are going to have a much more upbeat view of the world. They are much more likely to go out and shop at Wal-Mart (WMT) or Target (TGT) this holiday season. From the point of view of the nation’s retailers, this news could not have come at a better time.
Still, this is no time to get complacent on the jobs front. We still have an unemployment rate of 10.2%, and as of October, we were still losing about 200,000 jobs a month. Further, once people have lost their jobs they are staying unemployed for longer than ever before, or at least since records of unemployment duration have been kept. (see More on Unemployment Duration). I’m sure it was worse in the Depression, but the data cannot tell us exactly how much worse.
Things are moving in the right direction, according to the initial jobless claims data. This is the best news we have seen on the employment front in a very long time, and gives us something to be thankful for tomorrow.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience, he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.
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