Are jobless claims pointing to structurally high unemployment?

The latest jobless claims data is in, with initial claims registering 530,000 and continuing claims coming in at 6.1 million.  These figures are well off the business cycle highs of a few months ago but still quite elevated. 

While the as-reported seasonally adjusted initial claims numbers are in the 500s, the actual initial claims have been in the 400s for 6 weeks now. And the 4-week average of just over 442,000 is now within striking distance of the 4-week average at this time last year. I anticipate the gap will close by the end of the year.

On the other hand, continuing claims remain above 6 million and are a full 2.3 or 2.6 million above last year’s levels, depending on whether you use seasonal adjustments or not.  Clearly, the initial claims figures are declining faster than the continuing claims figures.  And, remember, an awful lot of people have exhausted benefits before finding a job.

So, stepping back for a moment, this picture suggests that unemployment will remain stubbornly high. I think this is a view most economists hold.  But, there’s more to the data than this. The data suggest a recession that is ending, but with remaining structurally high unemployment.

Look at it this way: When you think about GDP as a measure of the economy, what you normally hear is the economy grew 1% or 3% or the economy contracted 2% last quarter.  This is what is known as a first derivative statistic.  That means all we are measuring is the change from one period to the next. That’s it.

Equally, when we think about economic recession and recovery, we are also measuring change from one period to the next. If unemployment is 9% in one period and 9.3% in the next, the difference is minimal enough that a recovery could take hold because of cyclical factors like the inventory cycle and automatic stabilizers. So recovery can come even in the face of high unemployment.

Therefore, when I look at jobless claims, I think not only in terms of absolute numbers but in period-to-period changes because this coincides with the first derivative measures which reported GDP and business cycle measures are. For example, we are fast approaching a point where jobless claims are no higher than they were at this time last year.  As a result, one should expect a recovery to take hold.

What are the flies in the ointment?

  1. Initial claims are still at a level that suggests job losses and rising unemployment. While the trend in jobless claims suggests we will start adding jobs soon (maybe even before the end of the year), it is altogether possible that the move in claims down stops or reverses.
  2. The salve of stimulus and the boost of cyclical forces like automatic stabilizers are really the only thing keeping us from recession. if these are removed before unemployment stabilizes, the only way to produce economic growth in the short-term would be through the accumulation of debt.

All that said, when jobless claims do slow to a point that allows the economy to add jobs, it will do so at a very high level of unemployment (say 10%). Given the record low capacity utilization rates and the record low hours worked per employee, it is likely that unemployment will remain structurally high for a long period afterwards since employers are not going to add a ton of jobs in that situation.

The upshot of this structurally high unemployment is it puts a debt-laden economy at perpetual stall speed. Any exogenous shock (oil prices, inflation, withdrawal of stimulus, increase in interest rates) would throw us back into recession. And given the already high rates of unemployment and need for deleveraging in the private sector, that recession would likely be very severe.

Therefore, the only way out of this trap is exports as it could grow the economy and reduce slack capacity enough to move us away from stall speed. But, of course everyone is suffering with the same problem of lower growth and excess capacity.


Unemployment Insurance Weekly Claims Report – U.S. Department of Labor

  1. doctorx says

    There are other headwinds. IMHO proposed healthcare reform legislation’s 8% tax for co’s w/o hlth insurance for employees chills hiring at small co’s. If I’m on the fence as a small employer, I just won’t do that incremental hiring. In fact, I will focus on operating margins and ask existing employees to work harder.

    I also doubt that init unemp claims tell the full story. There’s also very little hiring. Look at’s survey updated daily. The unemp rate was rising when many more respondents were seeing hiring than firing going on. We are mired at equal levels of hiring/not-hiring for about 9 months-horrible. Perhaps the umep rate will end Sept around 10% on its way to 11%.

    1. Edward Harrison says

      Yes, it is the lack of hiring, not the firings that create the problem. That’s what I meant when I said that capacity was slack and hours worked were at record lows.

      1. doctorx says

        What do you think of this hypothesis?

        “The Bushbama Continuity of massive favoritism toward giant gambling “banks” and their stakeholders has IMO caused serious harm to the psyche of people involved in small-midsized businesses.? It sure has to mine.? The “Where’s our bailout?” complaint may retard the business expansion in ways that simply did not exist after prior post-WW II downturns.”?

  2. kynikos says

    You have to remember the primary reason why the housing bubble occured: houses are NOT tradable goods. (and thus not subject to import competition) Also, the housing bubble “created” various jobs in construction, and had secondary effects in increasing consumption which also gave a boost to the service sector.

    The higher “employment” rate in the early 2000s relative to most of Europe in the US does not reflect its dynamism or the superiority of neoliberalism, but the result of a misallocation of resources. Germany was well known for its high unemployment and welfare state.

    Edward, do you think it is a politically stable situation of socialism (high unemployment) without socialism (welfare state)? At least Germany has a welfare state.

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