Unemployment – Still Stuck

Today’s report that the initial claims for unemployment insurance fell 33,000 last week to 521,000 is obviously good news. That’s the lowest level since January and brings the moving average down a little – by 9,000 – also. So there is a glimmer of hope that the worst of the unemployment build-up is behind us. That is certainly the view permeating through Wall Street.

The problem I have with this is simply that any number as high as 521,000, albeit an improvement, is just not very good. Clearly the job market remains mired in awful condition, and there are no strong indications of a sustained improvement in any of the data.

So it is wrong to portray today’s information as signaling anything.

It is only a couple of weeks ago that we saw a positive movement that was immediately followed by a dramatic worsening. While the moving average – always the number to focus on – is showing signs of improvement, a gain of 9,000 on a base of well over 500,000 is hardly amazing.

So the job market looks as if it is still stuck. That is very bad news for anyone looking for a strong and sustained recovery. I realize that employment data lags behind other economic indicators – it improves a few months after things have started to recover – so perhaps we should not cry foul too loudly. The problem I have is that the level of unemployment remains so high and is likely to stay there for a long time. I still expect the unemployment rate to climb from its current 9.8% before easing sometime in the middle of next year. After that it should drop slowly back towards 7.0% in 2011. That’s a long and slow cycle, quite unlike the job cycles we saw recessions in the decades immediately following World War II. The change reflects the different types of jobs that now dominate the economy, and the slightly older workforce. But knowing why something is happening doesn’t mean we have to like it.

And I absolutely do not like the look of these unemployment claims numbers.

We can get excited once they drop into the low 400,000 range.

Until then we have to worry about the strength of the recovery. Which is clearly weak.