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The economy will start adding jobs again–in April

posted on September 28, 2009 at 8:30 am
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Unemployment will start to decline and the economy will start to add jobs again in April 2010.

At least that’s the result you get if you extrapolate the current rate of decrease in new jobless claims out into the future. The Financial Times did the calculation in its September 26-27 paper.

The calculation works like this:

Last week the number of initial jobless claims–the number of people newly unemployed–fell by 4% to 530,000.

The weekly number jumps around so much because of short-term news that it isn’t especially useful as an indicator. Economists prefer to use the four week moving average. (This average of the most recent four weeks changes every week as the oldest week drops out of the calculation and the most recently completed week gets added.)

Right now the four week moving average is giving us good news too. By this measure the number of initial jobless claims is falling at a 6% rate.

There’s always a lot of churn in U.S. economy so the number of initial jobless claims doesn’t have to fall to zero before the economy as a whole starts to add jobs. Unemployment will start to drop when the number of people getting new jobs exceeds the number losing their jobs for the first time.

So when will that be?

Economists figure from past data that the economy starts to add new jobs when the number of people filing new claims falls to about 400,000 a week.

At the 6% rate of decline in the four week moving average, the number of initial claims for unemployment will have declined to that 400,000 level by next April.

So we can expect that the economy will start adding jobs again in April 2010.

Couple of things to notice about that April prediction.

First, it depends on the economy continuing to recover for the next two quarters at the same rate of improvement that it has notched over the last two quarters. That’s a big assumption.

Second, an April turn in employment is about a quarter later than Wall Street now expects. The consensus now calls for unemployment to peak in the first quarter of 2010. If instead, the unemployment rate is still climbing in January, February, and March, then investors could be facing disappointing news–temporary though it might be–that’s not now factored into stock prices.

The Financial Times projections are all conjecture in other words, but potentially useful conjecture.

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One comment

  • Chris on 28 September 2009

    Peaking in April, possible. My own uneducated guess would be closer to June. Even then, I don’t think unemployment won’t drop significantly in the later half of ’10. I think you’ll have to wait until later in the year(at best) or possibly ’11 for any meaningful drop in unemployment. By meaningful I mean a couple of percentage points per quarter.

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