Continuing Jobless Claims Fall

Almost overlooked with this morning's big news on third quarter GDP was the unemployment claims report, which was a slight positive. Initial claims for unemployment insurance fell by 1,000 to 530,000. For a change, the previous week's numbers were not revised.

The four-week moving average fell 6,000 to 526,250 and are now 132,500 below their mid-April peak. This is good news, but it is not good enough -- we really need to see another decline of that magnitude to indicate that the economy is actually adding jobs. Note that even with the decline that we are still above the highest point hit in either of the prior two recessions.

Still, you have to crawl before you can walk, and walk before you can run. The graph below (from http://www.calculatedriskblog.com/) shows the history of the four-week moving average. A peak in the moving average historically has been a pretty good signal that a recession is shortly about to come to an end, something that was confirmed today by the GDP release (see "GDP Notes - In Depth" and "Contributions to GDP Growth").

I will note that after the last recessions there was an initial sharp decline in the level of new claims, but then we hit a plateau that lasted a long time, a sign of a jobless recovery. I suspect that we may see that again this time around. While the GDP report was better than expected, big parts of it appear to be unsustainable for more than the next quarter or so.

The news on the continuing claims side was, at face value, even better news. Continuing jobless claims dropped by 148,000 to 5.797 million, which is the biggest drop we have seen in this cycle. Even extended claims dropped by 71,000 to 3.893 million. Thus combined, there are now 9.69 million people getting unemployment benefits.

However, even extended benefits don’t last forever, and an estimated 7,000 people a day are losing that last lifeline. In Congress, the House has passed an extension, but the Senate continues to dither as the extension is being filibustered. After cloture is invoked, those senators who think that having millions of Americans suffering is a good thing (builds character, you know) plan to offer all sorts of unrelated amendments related to Acorn to further delay the bill.

This delay is not only callous as a humanitarian matter, but it is very stupid economic policy. If people have no income, and they have already run down their savings, they can either starve or turn to "extra-legal" ways of getting income. They certainly can’t be spending a lot of money at J.C. Penney’s (JCP - Analyst Report) or Macy’s (M - Snapshot Report). The bank that becomes important to them is the local food bank, not Bank of America (BAC - Analyst Report).

Extended unemployment benefits are among the best targeted stimulus dollars there are. They go directly to people who are in the most need, and to people who are likely to spend them quickly, thus creating a multiplier effect.

In contrast, the very people who are opposing the unemployment extension are among the people sponsoring the extension and expansion of the tax credit for home buying. This is a very poorly focused way of spending stimulus money, with the vast majority of the money going to people who would have bought houses anyway.

The expansion now even includes move-up buyers, and aside from generating commissions for realtors, I am at a loss to see how that does anything for the overall economy. Further, the benefits are going to people who earn far more than the median household does. More reverse-Robin Hood politics, afflicting the afflicted and comforting the comfortable.