As you read this morning’s bad news on unemployment, keep repeating: “Unemployment is a lagging indicator; Unemployment is a lagging indicator.”
It should keep your blood pressure down , prevent you from climbing out on ledge, and from joining this morning’s knee-jerk selling in the stock market .
Initial claims for unemployment benefits climbed to 480,000 in the week that ended on December 12, the Department of Labor announced today, December 17. That was an increase of 7,000 from the previous week. Economists surveyed by Bloomberg had expected that initial claims would drop to 465,000 for the week.
The news supports yesterday’s statement from the Federal Reserve’s Open Market Committee citing high unemployment as a reason for keeping short-term interest rates near 0% for an “extended period.”
The rise in initial claims isn’t, however, evidence that the economy is sliding back into recession.
The four-week moving average of initial claims, which is a better indicator of the trend since it takes the big week-to-week swings out of the numbers, fell to 467,500 for the week that ended on December 12. That was the lowest level of the moving average since September 2008.
The best way to think about the stubbornly and surprisingly high level of initial claims reported on December 17 is to remember that it’s a lot easier to fire people than it is to rehire them. Especially after an extended and really deep recession.
Right now some companies are still cutting jobs as they struggle with depressed conditions in individual industries that haven’t yet begun to recover or strive to become leaner operations to in order to survive in what promises to be a relentlessly competitive global economy even after any recovery.
Once management has made the often wrenching emotional decision to fire 400 or 4,000 workers, it’s not very hard to get the firing done. You mobilize human resources, reserve a lot of conference rooms, and send out the pink slips
Contrast that with the difficulty of hiring. First, after a recession, a company’s managers are likely to think twice, no make that three times, about hiring. The last thing they want to do is to jump the gun and hire new workers before their business has actually started to turn around. And then, second, filling job slots is a lot harder than emptying them. Companies have to advertise, hire headhunters, screen applicants, and finally interview to make sure they’ve got the right person for the job. Sometimes that new worker when offered the job can’t start right away or turns down the offer. Even when a company is rehiring workers of its own that it laid off, it can take a while to track down individuals, make the offer, get the paperwork done, and the like.
What we’re seeing in the unexpectedly high initial claims numbers is a lag in hiring. I’d expect this number, even on a week to week basis, will start to fall again in 2010 as hiring continues to catch up with an improvement in the economy.
That won’t bring unemployment down quickly. In fact increased hiring is likely to bring more discouraged workers back into the job market. That will keep the official unemployment rate high even as the economy improves.
Just remember to chant “Unemployment is a lagging indicator.”
Jim; I really like reading your insights, a lot of work inputted, and sence made in each article. Your audience appears quite knowledgeable & are very civil. We will not see any significant employment gains until the existing workers performance drops due to too much work on them. Look at the healthcare industry, then tell me everything “signed” is actually being done. Too much work, too few hours & personell. Dangerous times are upon us.
Jim and all:
As a new reader its enjoyable to read the blog and comments.
Sustainable growth only comes from the creation of “anchor” industries that need, or rely upon, many, many workers.
Real estate and financial jobs are bubble industries.
We must establish or re-establish leadership in such anchor industries. Jobs, benefits, savings all revolve around this basic fact. Little else matters.
Short-term we may pull out of this recession and see an uptick in job growth, However, if the bulk of the growth is in bubble industries it will not be sustainable.
I agree with those who believe that this time around the individual investor will save more and spend less.
So, Jim, what does that mean?
Jim
I work in a community bank and things do not look any better for my customers now than 6 months ago. More customers getting behind on loan payments because they recently lost jobs. Our commercial customers are barely hanging on by a thread some not paying employees for weeks if not months. Retail is busy but only for what is deeply discounted, people I talk to are only buying sale items nothing else.
The local weekly in my area that publishes public foreclosure notices has been between 27-30 pages every week for the last 9 months. This past week it jumped to 33 pages of notices. Until I see this number come down I do not believe we are coming out of this recession.
for the companies that are not doing so poor what about pay raises?
I’m a contract employee (by choice) and I believe that outsourcing and contract work is already picking up in certain areas as it allows companies to staff with specific skills more quickly w/o incurring the expense or relative committment it takes to bring on employees. This process also allows both sides to “test drive” the situation initially and perhaps leads to a conversion of a known resource to FTE in the future.
I have no shortage of leads for my next gig assuming the one I’m currently on ends in the near future but I don’t see that happening either.
Count me as a believer that unemployment is a lagging indicator. The questions here are: are we experiencing a shift in the ‘old’ model labour market? In order to cut costs and/or to be more productive, are companies going to use more outsourcing? Are companies planning to increase productivity through massive use of technologies? The way we answer those questions will shed a light on the unemployment future rate.
Unemployment is a lagging indicator; Unemployment is a lagging indicator
Jim:
I am waiting for your annual update of the Best 50 stocks.
Jim, With all due respect, I don’t think unemployment is a lagging indicator anymore. In the past, the premise was that as the economy started to improve people would take on additional debt and then unemployment would come around several months after. If you’re in the camp that believes a major shift has taken place in consumer’s use of debt (save more/reduce debt), then I think that makes unemployment a coincident or, possibly, a leading indicator.
Jim, I agree; “knee-jerk” and lagging are two very good words to describe this “post” recession. Never have I seen such a willingness to ignore positive, upbeat trends (everything from earnings to consumer confidence) in favor of “half-baked-into-the-market” news. Analysts’ projections won’t even buy a cup of java these days. Deal with it, investors, the unemployment issue IS going to lag the good stuff that has started to happen.
Open your eyes and ears (as Jim would say). Look at the shoppers this Christmas season; it’s hard to find a parking place! They’re so thick, you can’t stir them with a stick!
Now go out there and buy something, stock or anything! It’s not as bad as Wall Street would have you think!!!
tostoryteller,
Your son’s story is typical. Those with advanced degrees see lower unemployment rate. Engineering degree might mean changing several jobs in one bad year, but I never heard of an electrical engineer looking for a job for more than a year. However, I should admit that this country has a lot of “not so good” engineers.
I think, in general, high unemployment rate is good for economy in a long term. I was in the mall last weekend … There are still too many people buy too much junk. We have a long way to go until we really hit the peak in unemployment rate.
I do not know if the historical data would back me up, but I do think there is normally an increase in layoffs at this time of year in particular. I think it ultimately comes down to the year end book-keeping.
We would probably be a lot better off if, when they reconstucted our calander, they left New Years Day as April 1.
In any event, I expect the trend you illustrate to continue strongly once the book-keeping terminus is past.
Jim, I think it’s safe to say the rise in initial claims could be an indicator that we never actually got out of the recession. Even the president’s advisors can’t agree on that topic (not that I put much stock in them).
Historically, unemployment is a lagging indicator in a US economic recovery – the chant was true. However, there is no shortage of labor anywhere -except in very highly specialized jobs. Take, for example, my son. He was laid off from IBM last February, asked to train his counterpart in China on the way out (can you believe that?), and luckily found a position in SAS a month later. My conclusion? There will be no recovery of employment in the US that is meaningful for at least 5 years. I don’t think the recovery will be traditional or deep – and small business recovery could well be a lagging indicator rather than a leading indicator.
I belive the biggest reason “Unemployment is a lagging indicator” is because once you’ve cut employees (and for the most part these employees are the least essential or lowest producers) it’s much easier to get 10 remaining people to be 10% more productive and then 20 people to be 5% more productive, etc. before you even begin to think about hiring again.
There’s a fear factor for those still on the inside to remain there and their tollerance increases for accepting more work than they would in a stronger economy.
Only once the amount of work exceeds the upper capacity of the remaining workers will employers again start to hire.
Jim,
Look foward to reading your rational insight every morning in this irrational world!