Unemployment and Housing
Today’s news is generally slightly better. Not good. Very slightly better. Let’s take a look:
The weekly release of initial claims for unemployment showed a jump back up by 30,000 last week to 554,000. On the surface that’s obviously a move in the wrong direction. But, as I have cautioned before, one week is not a trend. The summer figures this year are being thrown out of whack by the seasonal adjustment factor the government applies to smooth out the temporary ups and downs associated with summer jobs, and summer furloughs etc. They do this so as to reveal the underlying ‘non-seasonal’ data. This year, however, and as I have reported before, the normal temporary blip up in unemployment associated with the auto industry’s traditional summer re-tooling is not happening – the carmakers have all gone through massive cost cutting or restructuring already so their summer furloughs are practically non-existent. Which means the government’s seasonal adjustment is skewing the data – there is no need to make the adjustment other than to be consistent with prior years.
So we should take the uptick in initial claims with a grain of salt. The four week moving average, which is more reliable anyway, fell by 19,000 to 566,000.
Meanwhile two other unemployment indicators were released today: the continuing claims data, which showed a marked decline of 88,000 to 6.22 million; and the ‘mass layoffs’ report – an indicator of how many instances there were of large scale layoffs [technically described as a layoff of at least 50 people at a single employer]- which fell by 170 to 2,763.
What to make of all this?
The job market remains grim. With there being no evidence of a return to hiring by business, the best explanation for the fall in ongoing unemployment aid claims is that people are exhausting there eligibility for aid and are simply dropping out of the workforce. The initial claims and mass layoffs seem to indicate a very gradual slowing of the rate of decline, but no strong improvement.
The job market is still very bad.
In contrast, housing is starting to show a little more life: the National Association of Realtors monthly release of existing home sales shoed a 3.6% improvement last month, the third straight month of gains. This is notable because it is the first time in five years that existing home sales have grown in three consecutive months. How important this trend is remains debatable. The inventory of unsold homes declined to about 9.4 months in June from May’s 9.8 months, but we don’t know if this decline was due to sales or due to discouraged sellers withdrawing from the market – the realtors don’t like to reveal that information. All of the gain came at the lower end of the market where the recent tax incentives have drawn plenty of new buyers onto the market. More expensive properties are not being sold at anywhere the same rate. Plus: the collapse of the housing market has created a flood of foreclosed properties that are being dumped by the banks: nearly a third of all sales last month were of foreclosed homes, which is not a sign of great strength.
So, while the realtors claim that the bottom of the market has been reached, I doubt that is true. There are significant regional markets where the price adjustment is only now taking place – New York City being an obvious example – while others have been devastated and are showing improvements from a disastrously low level.
Adding the unemployment and housing data together what do we get?
Not much!
We are still waiting for definitive signs of recovery. These indicators have some positive elements to them – the slight decline in the four week trend line of initial claims being one – but we would be grasping at very weak straws to argue that a recovery is just around the corner on the basis of this evidence. Plus the lingering rot throughout the job market has all the potential to kill off a housing recovery unless it reverses course soon: which it shows no signs of doing.
All in all: keep buckled up! We are nowhere near done with the recession.
