Job Losses: An Improvement?

Not enough unfortunately.

But let’s not be too churlish. We have to take that first step in any long journey. So today’s report on new claims for unemployment assistance is welcome, if not stunningly good, news. Claims dropped by 23,000 last week to 452,000. So we have fallen away from the near 500,000 level we hit in late summer. This is the good news. That we are still stuck way up in the 400,000 range is just not good enough. Especially at this point in the recovery.

There are plenty of signs that the economy is expanding. But everywhere we look those signs are weak. Not one suggests anything other than lingering malaise. Today’s release of the leading indicators index is an example: the index edged up 0.3%. That’s mediocre. Worse: when we look at the details we find that almost half of the improvement in the leading indicators since the depths of the recession has come from changes in the yield curve, and not from fundamental economic improvements. The yield curve measures the difference between short term and long term interest rates and has been managed by the Fed to help the banks make profits so they can rebuild capital. Now, with QE2 almost upon us, the yield curve will flatten and make earning those profits more difficult.

There are times I wish I could banish the phrase “edged up”. Yet it describes too exactly what is going on. Here we are a full year after the official end to the recession and we are still eagerly searching for the big rush forward. I suspect we will never get it. The depth and breadth of the crisis has left so much damage it could well be a decade before we emerge into “normality” again. Judging by this morning’s jobless claims figure it is almost certain that unemployment will haunt us for a very long time. Some people have even begun to revise what we mean by full employment. Remember that the Fed targets full employment as being that level in the market for jobs where inflation neither increases nor decreases. The jargon they use is : the non-accelearting inflation rate of unemployment or NAIRU. In the past this has been thought to be somewhere between 5.0% and 5.5%. Every time the US economy squeezed unemployment below that figure inflation tended to rise. Above that figure and inflation tended to ease. Obviously there are a ton of factors that influence what NAIRU is, and there are those who suspect the crisis has changed it.

In any case, today’s news continues the sorry narrative we are all used to: lots of “edging” and too little “surging”.