Jobs: Inching In The Right Direction

And I mean ‘inching’.

There is not too much to add to the headline of this morning’s report on first time claims for unemployment. Last week saw a very modest drop in such claims, by 11,000 to 448,000. Hurrah. Progress should never be sniffed at, but this is a crawl to the finishing line rather than a sprint. The good news? That we we have seen claims drop about 28% in the last year. So something, somewhere is getting better. But we remain stubbornly above the rate of new claims that would be compatible with a healthy bob market. No one really knows what that level is anymore. Before this recession most people would have argued that 300,000 a week was high. Now we read the media telling us that a weekly new claims rate of 400,000 would be fine.

I don’t agree with that.

My view is that, during the early stages of recovery, a new claims rate of below 300,000 is necessary to jump start the job market. We should all recognize that there will always be new claims for unemployment. Constant turnover in the job market dictates that. But a healthy market should have two characteristics: low first time claims with respect to total payrolls; and a declining, and eventually small, level of long term unemployment. In other words while turnover is inevitable in any economy, a healthy economy always absorbs workers back into the workforce quickly.

So the current existence, and persistence, of an incredibly high level of long term unemployment is the primary issue we face.

Couple that with this extraordinarily slow rate of decline in first time claims, and we have to conclude that the job market is still very sick. It has improved enormously since this time last year, but only to the extent that it isn’t getting worse. That is a very significant achievement, one that the stimulus package can take primary credit for. Yet we are still way short of a credible recovery.

Tomorrow’s report on GDP will stretch our minds: it will likely show growth of about 3.5% last quarter. That follows growth higher than that in the fourth quarter last year. Does it feel like that? Not at all. It will be very important to parse out where the growth is coming from and whether it appears sustainable throughout this year. Given the stubborn level of unemployment, I remain skeptical about the prospects for keeping GDP growing at those sorts of rates.

We are only inching in the right direction. We need to pick up the pace.