Thursday, April 16, 2009

Weekly unemployment claims and the boy who cried wolf

According to the Department of Labor today, weekly claims fell by 53,000 to their lowest level in almost three months, adding to the list of reports that beat expectations as the consensus expected a rise to 660,000. Here is what the Wall Street Journal's Real Time Economics blog has to say:
Forecasters love tracking jobless claims because they’re a timely read on the labor market, but also because they have historically been a great way to determine when declines in economic activity are nearing an end.

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, that’s a pretty big “if.” First of all, the current recession – which began in December 2007 – has been longer and by many measures more severe than any other postwar recession, so it remains to be seen whether jobless claims will have the same predictive power they’ve shown in the past. Secondly, the weekly series is volatile and could well keep rising as the nation’s unemployment rate, now 8.5%, heads towards the double-digits many expect.

“A clear down-turn in claims would be a strong signal of a turn in the broad economy, but we think that is still a few months off,” said Ian Shepherdson, an economist with High Frequency Economics, in a note following the release.

RW: As the chart suggests, I would take this reading with a grain of salt; because at the time, a peak in the 4-week moving average would have been apparent in December 2008, or even in March 2009. Frankly, nobody will really know, or be able to say with certainty, that claims peaked until well after they had already done so. Nevertheless, it is one of the the most current economic information out there, and this week's report was if nothing else "not bad".

Rebecca Wilder

2 comments:

  1. After following all the mostly down reports on macroeconomic aspects, has it occurred to you that something like the problems arising in Pakistan may have a big bearing on things in the near future? They are nuclear, in a strategic physical position, and unstable as all getout. There are some sideshows like Somalia and North Korea but Pakistan is a whole different ballgame.

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  2. the stock market has made a bottom that will last for years

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