 | Recent Plateau in Claims Not a Concern |
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Some analysts have been concerned of late with a plateau in jobless claims. The four-week average of new claims for jobless benefits peaked at 643,000 in early April 2009. The average then dropped steeply to 448,000 by the end of this March. Now, more than two months later, the average is still 451,000.
We don't see this as a reason to worry about the progress of the recovery, at least not yet. A simple model can be used to predict real GDP growth based on changes in initial and continuing jobless claims. And even if claims remain at current levels through the end of June, that model suggests real GDP will grow at about a 4% annual rate in Q2. Moreover, the model says the drop in claims during the previous three quarters (July 2009 through March 2010) should have been associated with real GDP growing at a 5.2% rate, not the 3.7% rate we actually experienced. In other words, the drop in claims over that period was greater than would normally be associated with the economic growth we had. As a result, we would not be surprised at all if we had a quarter or two when real GDP grows more quickly than would normally be expected given the change (or lack thereof) in unemployment claims, consistent with our forecast of a 6% growth rate in Q2.
In addition, we believe there may be some structural changes making comparisons with prior business cycles more difficult. First, it is easier to file a claim for unemployment insurance today than it used to be. In the past, workers had to go down to an office and stand in line; now it can be done via the phone or internet. Second, unemployment insurance has been "temporarily" extended to almost two years worth of benefits, making it more attractive to hold out, take benefits, and wait for a better paying offer.
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