New Jobless Claims Up

This week, initial claims for unemployment insurance rose to 531,000, an increase of 11,000 from last week. Last week's number was also revised upwards by 7,000, so the real increase is more like 18,000.

The week-to-week numbers can be all over the place, so the four-week average is generally a better gauge. It fell by a slight 750 to 532,250. It is now 126,500 below its mid-April peak.

Almost certainly we have seen the highs for the cycle. While the decline is very welcome, the absolute level is still extremely high, as shown by the graph below (from http://www.calculatedriskblog.com/). Even with the decline, we are still above the highest point in either of the last two recessions. We reall need to get back down below 400,000 and stay there to indicate that the economy is adding jobs.

The last two recessions had long periods where, after an initial decline in jobless claims, the decline stopped and there was a very long period where they pleateaued at a high level -- the famous jobless recoveries. I suspect we might just be seeing that again this time around.



On the continuing claims front, there is a bit of a mixed picture. Regular continuing claims fell to 5.923 million -- a decline of 93,000 from last week -- but last week was revised higher -- to 6.021 million from 5.992 million -- so the real decline was more like 69,000. That just counts the regular state paid claims for unemployment insurance. Those run out after 26 weeks, and as we saw in the September employment report, the average (mean) person who is out of work has been so for 26.2 weeks, and half of them have been looking for work for more than 17.3 weeks.

Thus there are huge numbers of people who are falling out of the system simply because their regular benefits ran out. When that happens, they become eligible for Federal emergency extended benefits (an important componenet of the stimulus bill).

There are now 3.855 million people who are getting those benefits -- an increase of 24,300 from last week -- but even those don't last forever. The House has passed additional extensions, although in the Senate things are being held up by the threat of a GOP filibuster, and a vote on cloture is expected this week. The different versions will then have to be worked out in conference committee. Almost certainly, President Obama will sign the extension (probably about 13 weeks -- more in states with above average unemployment rates) when it gets to his desk.

This long-term unemployment is an insidious problem for the economy. People who are out of work for just a few weeks really don't have to cut back on their consumption that much, especially if they feel confident that they will have a new job in a short time.

People who are seeing even their emergency extended benefits expire are not going to be spending an lot of money at Wal-Mart (WMT - Snapshot Report) or anywhere else for that matter. For a little while they can make due by running up their credit cards, but if a job doesn't come along it just means a much bigger default for the big credit card companies like Capital One (COF - Analyst Report) or American Express (AXP - Analyst Report).

If the stimulus bill had not passed, there would have been more than 3.8 million people (and their families) who would have been devoid of any income for months now. Next time you hear someone say the stimulus bill is not working, ask them to look one of those people in the eye and say it. Ask them how much lower retail sales would have been if those 3.8 million-plus families were not even able to shop for absolute necessities like food.

As it is, the banks that are most in need of a bailout right now are the local food banks (please donate to them is you are able). Think about how many more foreclosures there would have been. It has been good policy from both a hard-headed economic perspective, as well as a soft-hearted humanitarian perspective.