Dear Me: Jobs Outlook Worsens?

Well now, this is not good news. For a couple of weeks I have been arguing we should not panic when the report on new claims for unemployment insurance showed a slight worsening. First it was because the statistics were messed up by reporting glitches at the state level – or so we were told. Then it was a minor reversal due to faulty seasonal adjustment – or so we were told. So what is it this week?

This morning’s report shows an increase of 8,000 for new claims, bringing the total to 480,000. The expectation on Wall Street had been for a fall close to the 455,000 level. Obviously the employment situation has not begun to improve from the plateau reached back late last year. The momentum through last fall had been of steady gain, then, around late November, everything ground to a halt and has remained there. Indeed we now seem to be giving away some of the progress.

I don’t think there is a way of spinning this. The employment outlook has foundered. Many of us suspected that there was a ‘jobless’ scenario for the recovery in which the primary measures of economic health – such as GDP – started to regain positive motion, and yet underlying statistics, in particular unemployment, remained stuck in a much worse state. That scenario became the most frequently quoted and most likely outcome as people started to discuss the shape of growth over the next few years. Long gone are thoughts of a sharp recovery powering a rapid re-hiring process and, therefore, an equally rapid recovery on the jobs market.

This is going to be a long, tough haul.

Even the good news in today’s numbers is an illusion: there was a fall in the number of people collecting ongoing assistance. But that comes, most likely, from the fact that increasing numbers of workers have used up all their eligibility and are now not covered at all. Even though the long term claims figure is down 51,250, on a four week moving average basis, it is still over 4.62 million.

Jobs are evidently hard to come by.

Which is why talk of cutting the deficit is so premature. Draining demand from the economy, which is what cutting government spending amounts to, before unemployment has begun to decline substantially, is a very risky strategy. History tells us it could be extremely dangerous to balance the books until we are well beyond the crisis. Clearly we are not yet in such a safe spot.

We will see tomorrow what the actual unemployment numbers look like. The most important component to keep an eye on will be the long term figure: how are people who have been without a job for a few months faring? If that figure keeps on growing, we have a long term problem building that needs a urgent attention. People who have been unemployed for long periods consume their savings and then default on loans. As the backlog of such folks builds so does the potential for financial damage to the economy. Already nearly 20% of all homeowners have negative equity in their homes. If we compound the bubble collapse with long term unemployment the combined effect will be to slow consumption to a crawl. Since that is what drives our economy the recovery will be jeopardized.

We are not yet in double dip’ recession territory. But the longer unemployment loiters way behind the recovery the more of a downward drag it exerts.

Obama has proposed a very modest jobs program. Its passage, like everything else, is stuck in our do-nothing Senate. It should be a no-brainer. Helping our fellow citizens get back to work should not need much discussion. After all the next in line for help could be one of us.

In any case: the more American workers there are, the more customers there are for stuff. Paying to re-build the national customer base should appeal even to the most rabid conservative.

Pass that jobs program now.