This post is a guest contribution by Paul Kasriel* of The Northern Trust Company.
The best measure of the current condition of the labor market is the state unemployment insurance data. These data are not samples or surveys with guesstimates of how many new jobs were created by new businesses, but the head count of actual people standing in actual unemployment insurance lines. Too be sure, because a government entity is doing the counting, the first count is not always the most accurate count. But after four weeks of counting and recounting, the number that emerges is the one that remains for all times. The monthly labor reports from the Establishment and Household surveys get revised over and over, literally, for years.
Weekly data, which the state unemployment insurance data are, are inherently “noisy.” So, in order to more accurately measure the signal rather than the noise, it is prudent to average the state unemployment insurance data over rolling four-week periods. So, what are the state unemployment data signaling? They are indicating that the rate of firing has slowed significantly and that hiring could commence soon, if it already has not. As Chart 1 shows, the number of first-time claimants for state unemployment insurance on a four-week moving average basis has come down from a cycle peak of 659,000 in the four weeks ended April 4 to 497,000 in the four weeks ended November 21. Now, 497,000 new firings per week is nothing to brag about, but we can be thankful that it is coming down after the worst recession in the post-war era, a recession that started well before the stimulus program was instituted.
Although fewer people are now being fired, are any of those that have previously been fired being re-employed? Probably not yet, according to the continuing unemployment claims data, but the outlook for re-employment is improving. Because the past recession, which commenced in January 2008, well before the current stimulus program was initiated, was the longest recession in the post-war era, many of the people who have lost their jobs have been out of work so long that their regular unemployment insurance benefits expired. The current Congress and administration have implemented programs to extend unemployment insurance benefits to those who have exhausted their regular benefits. If we add these extended benefit claimants, which are not seasonally adjusted and need not be because there is unlikely to be any regular seasonal pattern to them, to seasonally-adjusted benefit claimants under the regular program, we see in Chart 1 that the four-week average of combined continuing unemployment claims appears to have peaked at about 9.9 million people and in the four weeks ended November 7 had moved ever so slightly lower to 9.8 million. Again, nothing to brag about but something to be thankful for. The combination of a decline in the number of firings per week and a slight drop in the total number of unemployment insurance beneficiaries suggests either that hiring has commenced in a small way or that it is about to.
How much of the improving labor market conditions can be directly attributed to the current stimulus program is impossible to say. For the current administration to make any claims along these lines opens it up to legitimate criticism. But what is possible to say is that about three months after the stimulus program was initiated, the overall economy began to emerge from the deepest and longest recession in the post-war era and now, about nine months after the initiation of the stimulus program, the labor market is showing incontrovertible signs of improving. Two of the biggest critics of the stimulus program with regard to job creation are two former chairs of the president’s Council of Economic Advisers (CEA), Michael Boskin from the Bush Sr. administration and Eddie Lazear from the Bush Jr. administration. Both of these presidential advisers appear to have gained policy wisdom after leaving their presidential advisory posts. For you see, during both Bush presidential terms, Senior and Junior, and under the tutelage of Messrs. Boskin and Lazear, the U.S. experienced the slowest job growth in the post-war era. If these guys are so smart with regard to job creation, why was job creation so weak when they were advising presidents?
*Paul Kasriel is Senior Vice President and Director of Economic Research at The Northern Trust Company. The accuracy of the Economic Research Department’s forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul’s 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst.
Source: Northern Trust – Daily Global Commentary, November 25, 2009.
