Jobless claims may signal the end is near

I have done my part over the past few weeks to write that I thought jobless claims signaled the potential for recovery.  I started the drumbeat in late March.  Here are the posts:

• Has the increase in U.S. jobless claims peaked?
• Are jobless claims peaking?
• How weak is the U.S. employment market?

So I think it pretty clear that I believe we are seeing a peak here (the Chrysler and potential GM bankruptcies clearly being the worry).  So, rather than beat a dead horse this week, I am outsourcing my message to Robert Gordon.  He is an Economics Professor at Northwestern University. He also sits on the committee at the National Bureau of Economic Research (NBER) which decides the official dates of recession in the U.S.  Below is what he had to say to Kelly Evans at the Wall Street Journal.

Another week and another encouraging sign: The Labor Department’s tally of new claims for U.S. unemployment benefits, released this morning, fell by 14,000 last week to a level of 631,000. This is still a high level, of course, but the four-week average of new claims — which smooths out weekly volatility — also declined, to 637,250.

The four-week average is being very closely watched by economists right now, given this simple series has historically had impressive power for predicting when recessions are coming to an end.

As we noted a couple weeks ago, Robert J. Gordon, an economics professor at Northwestern University who sits on the committee tasked with dating recessions, is one who finds enormous value in this series. Going back to the late 1960s, he has found that the four-week average of new claims peaks about a month before the declared end of recessions with remarkable accuracy.

As of right now, the four-week average claims series peaked at a level of 659,500 in the week ended April 4. If that number holds, based on the series’ past performance it would mean the recession ended somewhere between late March and early May — a far more optimistic read on the economy than any consensus forecast (the latest WSJ survey of economists shows on average they expect the recession to end in September). “The end of the tunnel may only be weeks away,” says Mr. Gordon.

Of course, the length and depth of this recession — which began in December 2007 — could mean the series doesn’t have as much predictive power this time around. It also won’t be clear for many months when the recession actually has ended, because even if signals coming from the data improve, the National Bureau of Economic Research’s dating committee, of which Mr. Gordon is a member, likely won’t declare an “official” end for quite some time. For example, the committee didn’t pinpoint December 2007 as the starting date of the current recession until a full year later.

And meanwhile, the government’s data also contained an increasingly worrisome piece of information: The total number of workers receiving jobless benefits jumped to nearly 6.3 million for the week ended April 18, a far higher figure than has been previously recorded by the Labor Department. With such high levels of workers on jobless rolls, it could keep a lid on any hopes for a recovery, particularly as the unemployment rate, now 8.5%, is expected to hit double digits.

So, jobless claims are definitely a number to watch as we head into the spring and summer. Absent claims numbers averaging 700,000 by mid-to-late summer, it will be safe to say, we are on the road to recovery. What kind of a recovery we get is another entirely different question.

Source
Jobless Claims Continue to Signal End Is Near – Real Time Economics, Kelly Evans, WSJ