Initial claims for unemployment insurance dropped to 550,000, a decline of 26,000 from an upwardly revised total of 576,000 last week, providing a net improvement of 20,000. The four-week moving average fell by 2,750 to 570,000.
As you can see in the chart below (from http://www.calculatedriskblog.com/), 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 almost 90,000 lower than at the peak, a level of 570,000, or even 550,000, is not good enough. A year ago we were at 336,733 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 ways away from that.
On the continuing claims front (one week delay) there was a big improvement with respect to people receiving regular state benefits, with a decline of 159,000 to 6.088 million. That is nice, but 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 bleeding jobs faster than the actors at the end of a low-budget slasher film. 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 3.541 million people, and increase of 53,750 on the week.
Still, that increase is less than the drop in regular benefits. Most likely, a majority 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.
Some of them may be working in the underground economy at varying degrees of legality (technically, being a gardener paid cash is not legal, unless the income is reported to the IRS). Some, out of desperation, may turn to much worse things than cash — unreported earnings. This could mean more business for Corrections Corp (CXW), but probably a lot less business for Kroger (KR) as these people turn to food banks instead of grocery stores. The food banks are going to need a bail out.
The number of people expected to run out of their extended benefits is about 1.5 million by the end of the year. This recession is causing a serious rise in poverty in this country. The stimulus package has helped ameliorate some of the pain, but it is only an aspirin, when far more serious painkillers are needed. However, those painkillers are addictive, and unemployment benefits were never meant to last for a lifetime.
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