Thursday, August 14, 2008
Today, the Department of Labor announced that unemployment claims fell 10k to 450,000 in the week ending August 9. The four-week average of newly filed unemployment claims is 440,500, which exceeds the average number of weekly claims filed spanning the 1992 and 2001 recessions.
On the surface, this number is daunting. 450,000 is 0.33% of the payroll, which exceeds the percentage of claims going into the 2001 recession, 0.29%. As it stands, 2008 has seen seven straight months of job loss, totaling 463,000 jobs shed, and the unemployment rate has risen 1% to 5.7% since last year.
However, job losses as reported in the establishment survey, 463,000, is small compared to the 1.6 million jobs shed in the 9 months of the 2001 recession. The unemployment rate, from the household survey that is statistically less meaningful than the establishment survey, was driven up by excess summertime (seasonally adjustments don’t account for this) workers looking for jobs to cover their shocking gas bills; as gas prices continue to fall, the unemployment rate should stabilize. All indications point to a soft and slightly deteriorating labor market, rather than one in a free fall like in previous recessions.
Congress obviously does not know this because it passed a new bill, "EUC 2008" or the Emergency Unemployment Compensation 2008 program, extending unemployment benefits up to 20 weeks to those who have exhausted theirs and increased individual benefits by $50. The bill stipulates that each state was required to notify all individuals who had previously exhausted their benefits that they may qualify for the EUC 2008 program.
So what happened? The state unemployment claims offices were overrun with individuals who may or may not qualify for the EUC 2008 benefits. Some individuals walked into the benefits office in order to see if they qualified for the EUC program, but were told (by the government of course, both times) that they actually qualified for the initial unemployment claims. This resulted in a 46,000 jump in initial claims for the week ending on July 26, 2008, and continued spikes two weeks thereafter.
Sure, the claims are deserved, but many of the new claimants would have never known that they qualified for the program had the States not told them. Congress is throwing money away, which seems excessively irresponsible when the labor market is not suffering as much as would be expected during an ongoing housing crisis, credit crunch, and surging oil prices.
Congress could save the cash that was spent on the EUC program and spend time (not money) informing workers that they may qualify for the program that was already in place. Why spend money on individuals who choose to be uninformed? Unemployment claims used to be a good predictor of the monthly employment report. Now there is so much noise that it is essentially useless.
Please leave comments. Best, Nontruths