Today's relatively shocking jump in initial unemployment claims has raised questions about the strength of the economy. Typically, initial claims are a solid leading indicator. However, almost every jump in initial claims (at least one that portends a recession) has been caused by a tightening in monetary policy. That is not the case today. Fed policy, if anything, is easier today than it was 6 months ago.
The 2008-2009 recession was not typical. We believe it was caused by a panic. There is always the chance (we think very, very small chance) that another panic is underway and that this is causing increased layoffs and more claims for unemployment benefits. But this explanation just doesn't feel right to us. Profits and worker incomes are rising, auto sales are rising, credit spreads have not expanded sharply, commodity prices are not collapsing, durable goods orders remain robust – it just doesn't feel, or look, like a panic or recession right now.
The chart nearby shows a major divergence between the number of initial claims and the amount of corporate layoffs calculated by Challenger, Gray and Christmas. Clearly, major corporate layoffs are not behind the elevated level of initial unemployment claims. So, what is happening?
1. It could be that small companies are laying off one, or two or three employees on a widespread basis.
These layoffs would not be picked up by the Challenger survey, which focuses on large-scale layoffs by
big companies, the kind of announcements that make the news.
2. It could be that the initial claims data are catching temporary workers who are being let go from the
Census.
3. It could be that the absence of the traditional large-scale auto-plant closings this summer is still playing
havoc with seasonal adjustments.
4. It could be that state and local governments are doing many more layoffs than normal.
5. It could be that a much more generous regime of benefits and government largesse is enticing more filings
for unemployment, in part due to the recent extension of long-term unemployment benefits.
Only time and some more data will tell exactly which of these explanations make the most sense. At present, it does not appear the US economy is headed for a double dip recession, but the rise in claims warrants watching.
|