Jobless Claims Rise? Maybe

We are left trying to put a good spin on today’s sad report that new claims for unemployment assistance rose 19,000 to 479,000. All the good work of last fall and early winter has been lost and 2010 has been a year of steady drift. Claims are now 5.5% higher than they were at the end of 2009. Obviously our high rate of unemployment is not going to be fixed anytime soon. Indeed there are worrying signs that many of our erstwhile leaders – if the word doesn’t dignify them too much – are beginning to slip into a new era of justification for the economy’s malaise: I am reading and hearing of an acceptance of higher than expected ‘structural’ unemployment. In other words, rather than summon up the energy to fight the disease our various elites are starting a campaign to explain to us all why higher unemployment is ‘inevitable’.

That’s putting a gloss on policy failure. Pure and simple.

As for today’s glitch?

The analytical community is less worried about the figures than I am. The reason is that statistical quirks could be distorting them. Here’s the logic: the figures are reported after they have been adjusted for seasonal trends. Those seasonal adjustments are based upon analysis of history. Summer is an odd time of year because some large employers, notably the auto industry, usually shut down their factories for a couple of weeks each year while they re-tool for the upcoming product year. This creates a surge in unemployment claims from the workers thrown out of the factories, but is then countered a few weeks later by those same workers being re-hired en masse. Since this is a traditional cycle it makes sense to eliminate it from the data in order to get at the underlying reality of unemployment. Hence the big summer seasonal adjustment.

But.

This year the auto industry is not going through that cycle. The big auto makers are all fully employed and didn’t shut down the way they have in the past. Thus the seasonal adjustment, which is still being applied, is distorting the figures.

Or that’s the story being hawked today to mitigate the gloom.

It probably has merit. If so, we will have to wait until the end of the summer to see whether the underlying trend is actually worse, or whether the summer’s worsening is simply an artifact of statistics.

In the context of the stalled improvement of the spring – prior to the adjustment anomalies – I argue that the truth is somewhere in between. Unemployment is not getting better at the rate it was, but these summer numbers are misleading as to how bad things are.