Almost lost in the news of the employment report for June was the initial claims data. There, the news was slightly more positive — new claims for unemployment insurance dropped to 614,000 from last week’s revised reading of 630,000 (was 627,000).
The four-week average of new claims dipped to 615,000 from last week’s 618,000. While the four-week average is well off its high set back in April, progress has been very slow. Historically, the four-week average of new claims peaks just about the point that the NBER eventually picks as the official end of the recession.
Thus it is conceivable that we could learn sometime early next year that today we are not still in a recession, but somehow I doubt it (yes I know that the four most dangerous words in investing are “this time it’s different”). The other indicators, like capacity utilization, simply have not followed suit, and the four-week average is looking more and more like a plateau than a peak. We did, however, get some confirmation today as continuing claims dropped by 53,000 to 6.703 million. A year ago, continuing claims were just 3.152 million.
Remember, though, this just counts people on regular state unemployment benefits, which normally last for 26 weeks. Well, according to the employment report today, half of all the people unemployed have been out of work for 17.9 weeks or more. That means that more and more people have used up their normal benefits, and will fall out of the continuing claims totals.
The extended benefits are counted as a separate federal program, and that adds 2.438 million more people getting unemployment benefits. There were no people on the extended federal program a year ago. It is thus hard to interpret the decline in continuing claims.
There are two reasons people fall out of the count — either they get a new job or the benefits run out. I suspect a fair amount of them are in the latter category. That means very real financial hardship, meaning that people will have a hard time going out to shop at not just Nordstrom’s (JWN) and Saks (SKS), but Kroger’s (KR) and Walgreen’s (WAG), as well. Those extended unemployment benefits could be proving to be literally, not just figuratively, a lifesaver.
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