More Bad News: Employment and Factory Orders

Today’s release from the Department of Labor continues our run of bad news. Initial claims for unemployment insurance increased yet again, this time reaching 626,000, the highest level in 26 years. Here’s the press release: ETA Press Release: Unemployment Insurance Weekly Claims
Report

I have said before, but it bears repeating: this is not the kind of record breaking we should be proud of. The numbers we are now seeing rival those of the 1981/82 recession which makes them terrible by any standard!

I cannot think of a reason why the jobs picture would improve any time soon. So when we see the
unemployment figures for January, which will be released tomorrow morning, I expect them to worsen from December’s.

The anecdotal evidence, and the well publicized reports of layoffs at larger companies, supports the grim outlook that is developing for 2009. Given that employers are aggressively cutting back in order to survive the drop in demand which is the root cause of the downturn, unemployment is certain to increase steadily all year long. The re-hiring necessary to turn things around will not occur until 2010, and even then will most likely be concentrated in the second half.

Remember: employment is usually a lagging factor, it declines and improves well after the economy has changed. So in a sense the employment figures merely confirm what we already know, rather than telling us where we are headed. Also, and in reference to my discussion of potential GDP versus actual GDP [the gap being what we target with the stimulus package]: higher unemployment means we are utilizing a key resource, labor, well below capacity. So the GDP gap that the stimulus package is supposed to fill is getting worse. That’s why the stimulus package needs to be acted on urgently.

Addendum:

Here is the equally bad press release from the Census Bureau describing the steep decline in factory orders: Factory Orders Drop 3.9% . The decline of 3.9% was much higher than most analysts expected and was broad based: no industries were immune. This is the fifth month in a row of contracting factory activity and confirms my argument above that unemployment is certain to keep on rising.

Clearly the recession, already the worst for decades is in full force.