Initial claims for unemployment insurance rose to 576,000, an increase of 15,000. This was in stark contrast to the expected decline to the 550,000 level.
The four-week moving average rose by 4,250 to 570,000. This is the second week in a row it has risen. To be sure, we are well below (by 89,000) the peak levels set back in mid-April, and it seems unlikely to me that we will surpass that level in this cycle. Historically, a peak in the four week average of initial claims has coincided with the end of recessions.
It appears that we are starting the pattern we saw in the last two recessions (see graph from http://www.calculatedriskblog.com/ below) where rather than coming straight down off the peak, there is an initial decline and an uneven jagged plateau after the peak. In the recessions of the 1970’s and the 1980’s after the recession was over, initial claims quickly retreated to the pre-recession levels once the economy was on the mend.
In the last two downturns, claims stayed elevated for about two years after the recession officially ended — a symptom of the jobless recoveries we had. The rise in jobless claims does not negate the idea that the recession is over, but it does throw cold water on the idea of a vigorous recovery.
Continuing claims also rose. There are now 6.241 million people getting regular state unemployment benefits. However, they run out after 26 weeks. Thus, changes in that number can have as much to do with the number of people getting laid off six months ago as it does with people getting jobs now.
Fortunately for those people, there is the federally subsidized extended benefits program. There are now 2.878 million people who are being helped by that program, and increase of 92,000 from last week. (There is a bit of a time difference in the reporting here, as continuing claims are one week behind initial claims and the extended benefits are one week behind continuing claims.)
It seems pretty clear that the economy is continuing to drop jobs in August. The drop in the unemployment rate in July was a bit of a statistical anomaly caused by a reduction in the civilian participation rate in the economy, not by robust job growth.
The rate of job loss has slowed from the horror show that was last winter, but it is still very large. Keep in mind that the population is growing — just to keep up, the economy really needs to add well over 100,000 jobs a month.
Yes, getting job losses down to 245,000 is a HUGE improvement over losing them at a 700,000-a-month clip, but is not a sign of a healthy economy. Even the extended benefits will not last forever.
According to the National Unemployment Law project, 500,000 people will exhaust their extended benefits by the end of September, and 1.5 million will do so by the end of the year. With the extensions, these folks have been out of work for well over a year at this point. That means they have probably already run through all their savings and borrowed against or drained what ever 401K and IRA plans they have. They have probably also maxed out their credit cards. They are left with almost no financial resources.
Soon they will be left with no (legal) income at all. Thus, they will have to rely on food banks and soup kitchens rather than going to Kroger’s (KR) to get food. Food banks are already overwhelmed and are running low on supplies. The country needs a food bank bailout as much as it needed a bailout of Citigroup (C) and Bank of America (BAC).
If these people are homeowners, they will be foreclosed upon, or will simply stop mailing in the mortgage check and wait for the sheriff to show up at the door. This will severely hurt the holders of mortgage-backed securities and the banks. Ultimately it will hurt the taxpayers, since many of these mortgages are backed by Fannie Mae (FNM) and Freddie Mac (FRE), and we the taxpayers own 80% of both of them, as well as having extended them $200 billion in credit. Poverty, already a major problem in this country, is going to be a much bigger issue going forward than it has been in the past.
As for health care, COBRA has probably lapsed, even if they could afford it (the stimulus package actually made COBRA affordable to many people). They will either end up on Medicaid or just using the Emergency Room for all their medical needs. Either way, the taxpayers will take it in the wallet.
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