New Unemployment Claims Fall Slightly

Initial claims for unemployment came in at 570,000, a drop of 10,000 from last week’s revised figure. However, last week was revised up by 4,000, so the net improvement was only 6,000 from where we thought we were. The four-week moving average dipped by 4,750 to 566,250. New claims peaked at 92,500, higher than back in April, but recently the rate of decline has slowed.

As the chart below (from http://www.calculatedriskblog.com/) shows, recessions prior to the 1990 downturn tended to to come down fast and in a straight line. The last two recessionary episodes had a quick initial decline, but then remained high for an extended period of time. I think we are transitioning into that phase.

Being stuck at this level means that the economy is still losing jobs, but just not at the rate it was at the beginning of the year. At the same time, other economic indicators — such as the new home sales data released yesterday and the industrial production data released last week — seem to indicate that the economy is now growing. Growing slowly, but growing.

In other words, it looks like we are in the jobless recovery phase, something we experienced coming out of both the 1990 and 2001 recessions. We probably need to get claims down to under 400,000 to indicate that the economy is actually adding jobs.

Continuing claims (one week behind new claims) fell by 119,000 to 6.133 million. Those numbers only track regular state unemployment programs, which expire after 26 weeks. Well, back in February (6 months ago), the economy was absolutely hemorrhaging jobs — so time’s up, folks.

Except for one thing — the emergency extended benefits, which were part of the stimulus package. There are two such programs, and combined they are providing an additional 3.381 million people with unemployment benefits, an increase of 103,000 (these numbers are a week behind continuing claims, and two weeks behind initial claims). Thus if we ignore the week lag, there was just a minor reduction in the total number of people getting unemployment benefits.

Remember that extended benefits do not last forever. Thus we really don’t know if the people who are leaving are going out through the door with the beautiful lady (getting a new job) or the door with the tiger behind it (benefits exhausted, now have zero income). We will get a better idea of that next Friday (9/4) when we get the monthly jobs report.

One thing that we do know is that very high levels of long-term unemployment has been one of the defining characteristics of this recession. An estimated 1.5 million people are estimated to run out of extended benefits by the end of the year.

These people are going to be more likely to patronize the Food Bank than Bank of America (BAC), even if they were once in the middle class. They are going to be doing whatever shopping they do at the Salvation Army and Goodwill rather than at Wal-Mart (WMT). This is a second step down — they probably switched to Wal-Mart from Macy’s (M) when they got laid off.

As for health insurance, even with subsidized COBRA (also one of the Stimulus Package benefits), it will be unaffordable when you have no income at all. The 47 million number for the uninsured that is routinely used in the health care debate is from last year, and thus significantly understates things since in this country, your health insurance is tied to your job.

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