Every morning I give my economic spiel to the bond group – this morning, the Department of Labor reported that the number of weekly initial claimants fell 21k to 530k, dragging the 4-wk moving average down 11k to 553.5k. Also in the release, the insured unemployment rate (number of employees claiming unemployment insurance divided by the stock of employees that qualify for unemployment insurance under the regular 26-week (generally) state programs), which is seen as a leading indicator of the unemployment rate, dipped 0.1% to 4.6% in the week ending September 12. A downward trend here normally leads the national unemployment rate.
But in times like these, when the actual number of insured rests around 9 million and exceeds the 6.1 million in the regular state programs, does the insured unemployment rate still indicate trends in the national unemployment rate? (The chart to the left illustrates the total unemployed claiming insurance benefits under the regular state programs (the calculation of the aforementioned unemployment insurance rate) + claimants under the emergency programs, EUC 2008 and Extended Benefits (see the release here).)
It looks like the relationship remains rather strong. The chart below illustrates the estimated relationship between the monthly average of the insured unemployment rate and the national unemployment rate (currently 9.7%) since 1981.
The simple equation has an R2 = 0.858, which is respectable. And the most recent data points, July and August in green and red, respectively, rest very close to the fitted line – August is right on the fitted line. If the insured unemployment rate continues to decline, the relationship suggests that so, too, will the unemployment rate.
However, the initial claims numbers will be dropping as well, and initial claims are the most current information out there (besides the daily Treasury receipts). Initial claims remain well above any level that would suggest a decline in the unemployment rate (around 350k-400k).
I don't believe that the economy will see a jobless recovery - i.e., the job loss that occurred for almost two years following the end of the 2001 recession (November 2001).
The 4-wk average to date is starting to look that way, but there is just so much spare capacity - August 2009 capacity utilization rate was just 69.6% compared to 73.5% in November 2001. I just don't see why a firm would opt to buy new capital before it uses its excess capacity - that means hiring workers.