- by New Deal democrat
Last week I wrote that, compared with the onset of previous recessions, in which a rise of initial claims of 10% or more off the bottom was almost always required, the current situation only appeared to support slow growth but not actual contraction.
This week's number makes for an even more dramatic comparison. As of now initial claims are less than 2% higher than their lowest point in the recovery:
Suffice it to say that we are now well below the lower bound of the past conditions required for consistency with the onset of actual economic contraction.
With the addition of this week's data, once again last year's pattern of an increase during the second quarter which subsided in the third quarter is so far being repeated this year:
When we measure weekly, as opposed to by the 4 week average, we see that the two lowest weekly claims reports of the entire recovery have been this month:
If, despite new lows in weekly claims being made and the 4 week average being only 1%+ off its bottom, we are in a recession anyway, then initial jobless claims have lost almost all use as leading indicators.
3 comments:
Wall Street was relieved on the news that the economy was not in recession during the second quarter. Growth was slow, but not negative. New claims for unemployment has also dropped during the last three weeks. Believe it or not, but the S&P 500 is up by eight percent so far this year. Catapiller, a good indicator of the world economy, also say that sales are strong around the world, especially in the United States. However, Steve Liesman of CNBC is still skeptical and says that July is not a good indicator of long term trends.
As I have often said on this blog, I'm somewhat of a contrarian. With so much pessimism in the economy, I've been somewhat more optimistic than most other economists in the last couple of months. However, high oil prices will continue to keep the economy from being robust. I expect to be pessimistic again once everyone else becomes more optimistic. When optimism is high, oil prices rises through the roof causing another slowdown. Oil prices are already on the rise.
"If, despite new lows in weekly claims being made and the 4 week average being only 1%+ off its bottom, we are in a recession anyway, then initial jobless claims have lost almost all use as leading indicators."
If you follow an individual leading indicator long enough, it will likely eventually fail. That's why forecasters usually use composite indices.
The drop in claims was mostly due to the seasonal adjustments, with a delay in the annual summer auto worker layoffs. If those layoffs come this week or next, we could see a spike over 400k in claims easily. I'm still scratching my head over how auto makers are keeping their factories churning out cars, considering GM has an absolutely huge amount of inventory at their dealerships (an all time record by far, in fact, and more than at any time by far in the last business cycle when they sold far more cars.)
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