Unemployment Data Belies Signs of Improvement
There have been a number of statistics released in the past two weeks that seem to indicate that we may be reaching to bottom of the downturn. Data from manufacturing managers and durable goods orders both were firmer than they have been for a while. Personally I prefer to see two or three months of a firming trend before believing that the worst is over, so I would caution anyone against joining in Wall Street’s current bounce back.
This is particularly true given what appears to be a terrible employment picture.
The data released today about new jobless claims is grim. Here’s the Department of Labor press release: ETA Press Release: Unemployment Insurance Weekly Claims Report
Initial claims for unemployment insurance, which as the name suggests is a measure of the change in newly unemployed workers, rose again last week. More importantly, the four week moving average is steadily creeping up and is now at 656,750. Remember these are new claims, not continuing claims.
As long as the moving average keeps ticking up we can safely argue that the outlook for workers is getting worse.
If the jobless claims data paints a grim picture for unemployment, then the ADP Employment Report released yesterday is even worse. According to ADP, the largest payroll processor in the country, payrolls declined by 742,000 in March. For the economy to shed nearly three quarters of a million jobs in a single month is not a sign of improvement!
As long as the employment picture continues to stay this bad I cannot see a way for the economy to build any significant or sustained upward trend. Consumer spending is just too large a portion of GDP, and with fears about job losses so prevalent consumers are unlikely to indulge in a spending binge. Thus we seem to be more likely to wallow around for a few months during which time a few statistics may show hopeful signs, but overall no strength will emerge.
I still believe that the downturn will last well into the Fall. Maybe even into next year. The stimulus package past last month will arrest the decline, but I remain skeptical that it was large enough to kick start a strong recovery.
The more important question is not the exact timing of the recovery, but its nature. Typically steep and deep downturn are followed by sharp upturns so that within a year or so most of the economic damage has been repaired. Our problem this time is that with the banks still floundering and unlikely to be repaired any time soon we will lack the critical ingredient – strong lending – needed to provide power to the recovery. Without credit expansion the economy is likely to bounce along weakly, no longer shrinking but also not strongly thriving. Given the economic problems we need to solve during the next few years, re-tooling education, retirement and health care for instance, a weak economy is insufficient.
In any case: the current unemployment outlook suggests we are a way from getting any growth at all, let alone a credible discussion of how strong growth will be.
Meanwhile we await news from the G-20 meetings in London. On that front don’t hold your breath. I imagine we will be treated to breathless talk of ‘breakthroughs’ and ‘agreements’, but will then see little action. If Obama has a hard time getting Congress to support stimulus, the odds of getting international support are practically zero.
