Initial Jobless Claims Flat(-ish)

This week, initial claims for unemployment insurance (or jobless claims) were 505,000, the same as last week’s revised figure. However, the initial read was 502,000, so it is just as valid to see this as a 3,000 increase.

That, however, is not much in the overall scale of things. The four-week average fell by 6,500 to 514,000, and is now almost 145,000 below its mid-April peak.

The graph below (from http://www.calculatedriskblog.com/) shows the very significant progress that has been made in brining initial claims down, but also the long way we still have to go. The four-week average is still above the peaks of the two previous recessions. It is also still at a level that would indicate continuing net job losses. We probably have to see initial claims fall below the 400,000 level to indicate that, on balance, the economy is adding jobs.

On the positive side, there is no real evidence of a stalling in the decline, or the formation of a high plateau like we saw in those two downturns. So far, the decline looks more like the pre 1990 downturns, which partially assuage fears of a jobless recovery -- but it is too early to celebrate this. It would be better to plateau at a level around 400,000 like we did coming out of the 2001 recession than to be at a level of over 500,000.

The news on continuing claims was more mixed. Regular state claims for unemployment insurance, which run out after 26 weeks, declined by 39,000 to 5.611 million. If you are out of work for longer than that, then you are eligiable for extended claims, which are paid by the Federal Government as part of the Stimulus program. More than one third (35.6%) of all the unemployed currently have been out of work for more than six months and half have been out of work for at least 18.7 weeks.

There are two major extended benefit programs, and combined they are providing benefits to 4.113 million more workers -- an increase of 119,000 from last week (although the data for extended claims is one week behind the data for regular continuing claims, and two weeks behind initial claims).

Those extended claims do not last forever, but fortunately Congress passed a bill that was signed on November 6th that further extended claims for up to another 20 weeks (depending on the level of unemployment in that state). Unfortunately, we learn from this morning's New York Times that the bill was very poorly crafted in the fine print, and there is still the possibility of millions losing this economic lifeline:

“The record extension of emergency benefits that was signed into law on Nov. 6 was widely praised as a lifeline for hundreds of thousands of Americans who had spent a year or more in fruitless searches for jobs. 

"The new law provided up to 14 weeks of federally paid aid to unemployed people who had exhausted existing state and federal limits, benefits that already lasted up to 79 weeks in many states. And for the majority of states with particularly high unemployment, it added six more weeks of payments, bringing the potential total to 99 weeks.  

"But many legislators, state aid officials and struggling workers apparently failed to read the fine print. The added federal benefits were built on a series of previous extensions that are slated to end on Dec. 31, unless Congress renews these programs. People who lost their jobs after July 1 of this year, for example, would receive no federal extensions once their customary six months of state aid ran out.” (Click here to read more.)

The real number to focus on, then, for evaluating the level of continuing claims is not the regular state benefit numbers, but the combination of the regular state and the extended claims, which now stands at 9.774 million. While we have seen some real progress, if one were to just look at the regular continuing claims data -- which peaked at the end of June at 6.904 million -- that is mostly an illusion, since the extended claims have picked up  that slack and then some, rising from 2.430 million, an increase of 1.733 million. Thus, combined continuing claims have actually risen by 440,000 since they “peaked” on just a regular continuing claims basis.

With the pace of hiring as slow as it is, this hole in the safety net will have to be repaired as soon as possible.  With no income, and more than six job seekers for every available job, those people are going to be in a world of hurt. Most Americans have very little in the way of savings to fall back on, especially outside of IRA’s and 401k plans. Tapping those would expose people to a 10% penalty and it would be considered taxable income for them. Yet many of them will probably be forced to do so, even if unemployment insurance is extended to them.

It is not just for humanitarian reasons that benefits should be extended. Without an income, people will have to do their banking at the local food bank, not at Bank of America (BAC - Analyst Report), and even the local food bank needs a bailout these days. People will be hard-pressed to shop at even the Salvation Army, let alone Wal-Mart (WMT - Snapshot Report).

Extending benefits is one of the most effective forms of economic stimulus there is. It is far more effective than extending lavish tax credits to move-up homebuyers with incomes up to five times the national median. Unfortunately, the unemployed to not have as effective a lobby as the used home dealers (aka Realtors).