Initial Jobless Claims Fall

We got some good news on the job front today as initial claims for unemployment insurance fell 33,000 to 521,000, the lowest level since January. This brought the four week moving average (shown in the graph below from http://www.calculatedriskblog.com/) down by 9,000 to 539,750. This is 119,000 below the peak it set back in April.

Historically, a peak in the four-week average of new claims has correspondened with the end of a recession, although I think clearly this time it jumped the gun by a few months. Still, given the length of time since it peaked and the magnitude of the decline, it seems very unlikely that we will see a new peak in this cycle.

However, it does seem likely to me that we will have a period where claims stay elevated -- though well below the peak -- for some time. This is what we saw in the last two downturns.

Still, the market is going to interpret this as good news. A year ago, the four-week moving average was 478,000 and rising rapidly, so we might in a few weeks get to the point where the year-over-year change in new claims is negative.

On the continuing claims front, there was also some apparent good news in that continuing claims fell by 72,000 to 6.04 million. However, there are two ways one can leave the continuing claims pool -- by climbing out and getting a new job, or sinking to the bottom by simply exhausting one's benefits.

When the latter happens, you move -- at least for a time -- into the extended benefits group. These extended benefits are paid with Federal funds and come in large part from the stimulus package. There are two major programs, and combined they are helping to keep 3.787 million people above water -- an increase of 68,000 from last week (there is a one-week lag in the data).

Thus, while the total number of people getting unemployment benefits is down, it is down by only 4,000, not the 72,000 that most of the financial press will report. The extended benefits do not last forever, and by the end of the year, 1.5 million people are scheduled to lose even those extended benefits, which will leave them with no income at all. The House has passed a 13-week extension for people who live in states with an unemployment rate of over 8.5%, but the Senate has yet to act on this matter.

So, do you think that in those households this Christmas is going to be one dominated by Santa or the Grinch? My bet is it will be pretty Grinchy. That means that people will not be going out to the malls and spending a lot of money at Saks (SKS - Analyst Report) or Macy’s (M - Snapshot Report). The discounters like Family Dollar (FDO - Snapshot Report) and Wal-Mart (WMT - Snapshot Report) might do OK as former high-end shoppers trade down, but the mall anchors and the higher end specialty stores are likely to face a very bleak and dreary Christmas season this year.

This will be the second weak holiday season in a row, so they will have relatively easy comps -- but even so, with unemployment still rising and those who are out of work being out of work for unheard of lengths of time, it is hard to see how people will open up their wallets very wide. Who knows, Christmas might even turn back into a predominately religious holiday…

Nah, that will never happen.