Friday, April 3, 2009

Employment Situation - bottomed?

Edward Harrison guestblogging at Nakedcapitalism first asks "Are Jobless Claims Peaking?". He looks the YoY change in the unadjusted 4-week average of initial jobless claims

and makes the following observation:
"As you can see, the graph clearly indicates that the change in initial jobless claims has peaked (temporarily?). These peaks are not lagging indicators, they are usually coincident or leading indicators. Here are the dates and numbers for peaks in changes in initial claims going back to 1967 when the data began:

  1. 5 December 1970 at 120,000 (the recession ended in November 1970)

  2. 1 Feb 1975 at 361,000 (the recession ended in March 1975. Note: Apr-Jun 1974 showed positive GDP growth)

  3. 7 Jun 1980 at 238,000 (the recession ended in July 1980. Note: this was the first in a double dip recession)

  4. 30 Jan 1982 at 202,000 (the recession ended in November 1982. Note: Apr-Jun 1982 showed positive GDP growth)

  5. 23 Mar 1991 at 154,000 (the recession ended in March 1991)

  6. 20 Oct 2001 at 165,000 (the recession ended in November 2001
I hope this makes it pretty clear that the last few recessions show changes in initial jobless claims as a coincident or leading indicator. Moreover, the peak in this cycle right now stands at 327,000 on 31 Jan 2009, which was 2 months ago. Today, we are at 275,000, quite a bit lower. Now, unless the SA weekly initial jobless clams start hitting 700,000 - 800,000 this spring and summer, we have already seen the peak here."

With a nice 25% rally from the bottom the stock market seems to concur.

However after the latest release from the BLS on the employment situation he loses some of his optimism noting: "My favorite employment related-statistic, the year-on-year change in the unemployment rate, is a coincident or leading indicator. It is still rising. The SA change is 3.5%, up from 3.2% in February. The real NSA number is 3.8% up from 3.7%. As a point of reference, the worst climb since the depression is 4.2% in October 1949. I would expect that is where we are headed. (In 1932 this number reached 10.7% and in 1938 it reached 8.6%)."

He then looks at this chart

and writes: "The gray bars above indicate recessions. What you should notice above is that recessions don't end until the change in the unemployment rate peaks. Whether we peak late this year is a matter of pure speculation at this point. The long and short: the employment situation report paints a grim picture and it is getting worse."

Is the market too optimisitic after all?

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