Unemployment During the Great Recession

If a picture is worth a thousand words, this is a long post.  The plots of the United States measure the biannual changes in the unemployment rate by state beginning in January 2008.  Low rates of unemployment are yellow and high rates, dark red.

January 2008.

July 2008

January 2009

July 2009

January 2010

July 2010

January 2011

July 2011

January 2012

Read more!

2010 Nobel Laureates in Economics

Three economists, Peter Diamond, Dale Mortensen, and Christopher Pissarides, won the Nobel Prize in Economics for research on how economic frictions created by job search, regulation and other variables affect unemployment.  My students should note that job search is included in chapter 15, “Unemployment,” in Mankiw’s text.

In chapter 1, “Ten Principles of Economics,” Mankiw enumerates ten principles of economics, the first of which is that people face tradeoffs.  A very good article by Karl Ritter and Louise Nordstrom, AP writers published in the Chicago Tribune, “2 Americans, British-Cypriot win Nobel economics prize for job market analysis” describe a positive conclusion as stating

"One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times," the academy said.

A second conclusion is that the longer search time leads to a better matching of jobs to laborers.  The trade-off is the cost of the benefits for for more efficient job allocations. 

Diamond wrote a paper in the early 1980s that found that unemployment compensation can lead to better job matches. Workers "become more selective in the jobs they accept" because of the employment aid. And, that makes for better matches and increases efficiency, he found.

A second conclusion is that longer periods of unemployment lead to a disconnection with labor markets.  The trade-off is the loss of contact with the labor market that is part of the cost of finding a more efficient job match.

"One of the key things we found is that it is important to make sure that people do not stay unemployed too long so they don't lose their feel for the labor force," Pissarides told reporters in London. "The ways of dealing with this need not be expensive training — it could be as simple as providing work experience."

Read more!

June Unemployment and Jobless Recoveries

Yesterday, the government released unemployment data that indicates continued weakness in labor markets.  The unemployment rate fell to 9.5%, but only because 652,000 workers dropped out of the labor-force (Timothy R. Homan and Steve Matthews, Bloomberg, "Employment Shortfall Sets the Stage for Slowdown in U.S. Economic Recovery," see also my posts, "The Little Engine Who Could?" and "The Unemployment and Labor-Force Participation Rates").  The only good news was that private sector employers added 83,000 jobs.  The previous day, the government released data on initial unemployment claims that showed that claims increased by 13,000 to 476,000, and that the four week moving average of initial unemployment claims increased 3,250 to 466,500.  Many economists believe that initial claims are a leading indicator in the movement of unemployment rates.  Robert Gordon's research finds that recessions soon hit bottom after the four week moving average peaks.  True to form, shortly after the average peaked in April 2009, the economy resumed growth.

The above graphs compare the four week moving average of initial unemployment claims and the unemployment rate of the last four recessions.  The current recession is clearly deeper than the previous three recessions.  The graphs also show that employment recovered more slowly in the last three recessions and many have dubbed the phenomenon as jobless recoveries.

James Hamilton of Econbrowser proposes an explanation in which he finds that changes in recoveries may be more cosmetic than real ("Jobless recoveries"). The Social Security Amendments of 1958 exempted unemployment insurance from income taxation.  To benefit employees, corporations who had the choice of reducing a worker's weekly hours or temporarily subjecting them to layoff, chose layoffs which increase the unemployment rate and their workers' wages net of taxes.  The situation reversed with the Revenue Act of 1978, which subjected unemployment benefits to partial taxation under the income tax law, and the Tax Reform Act of 1986, which made unemployment benefits taxable as ordinary income.  Now workers do no derive a tax benefit from being unemployed compared to having their work week reduced.  Since the mid 1980s, temporary layoffs have become a less important component of the unemployment rate.  Hamilton includes a graph which adjusts the unemployment rate for temporary layoffs which he subtracts from the unemployed.  With this adjustment, improvements in the unemployment rate lag in all recoveries.  Brad DeLong, the first to comment on Hamilton's post, and Arnold Kling, who responds in his own blog post both note that this change in definitions also increases the severity of the current recession compared to others (Econlog, "Temporary Layoffs in Postwar Recessions").

Kling adds an alternative hypothesis: fewer industries are subject to large inventory fluctuations reducing the number of workers subject to temporary layoff.  Let me add a third: regime uncertainty as described by Robert Higgs has slowed investment and recovery (The Beacon, "Regime Uncertainty—Now Maybe People Will Take the Idea Seriously".  Are these dueling hypotheses or all partial explanations?  That question can only be resolved empirically. 
Read more!

Reynolds on Unemployment and the Economy

Alan Reynolds, a senior fellow with the Cato Institute had a different take on why the recent unemployment data has been interpreted so negatively (Wall Street Journal, "Don't Believe the Double Dippers").  It's the political spin and it comes from both sides of the aisle.

Using all of this statistical trickery to convert a weak job market into an imminent recession has become a bipartisan political strategy. Robert Reich and other big government Democrats play the "double dip" card to peddle more deficit spending on refundable tax credits and transfer payments. Conservative Republicans often become double-dippy for very different reasons—to argue (quite plausibly) that hundreds of billions in "stimulus spending" has proven counterproductive so far, contributed to the debt, and will eventually lead to higher taxes.

Reynolds does an excellent job describing various measures of unemployment (U2, U4, and U6) and the "Job Opening and Turnover Survey."  His interpretation is well worth the read.

In addition to interpreting the employment data, he describes the general economic outlook.  If it were a weather forecast, he would report that the sky is not falling, but the dawn is overcast.    

Those who want to know what is going on must sift through all of this bipartisan gloom to distinguish between (1) agenda-driven dire warnings and (2) the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation.

Read more!

Comparing Unemployment and Initial Claims of Four Recessions

The economy is growing at a moderate rate according to testimony given by Fed Chairman Ben Bernanke (Greg Robb, "Fed's Bernanke sees moderate recovery ahead," Market Watch, April 14, 2010). 

In testimony before the Joint Economic Committee of Congress, Bernanke said private demand would be sufficient to replace the diminishing government stimulus and inventory adjustment that have spurred growth in the past six months.

"On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters," the top U.S. central banker said.

Continuing high unemployment is the fly in the recovery honey.  Today's "Unemployment Insurance Weekly Claims Report" added another data point suggesting that improvements in the job market will be at a snails pace. 

In the week ending April 10, the advance figure for seasonally adjusted initial claims was 484,000, an increase of 24,000 from the previous week's unrevised figure of 460,000. The 4-week moving average was 457,750, an increase of 7,500 from the previous week's unrevised average of 450,250.

The three graphs at the top of the post compare the movement of the unemployment rate and four-week moving average of initial unemployment claims of the current recession with each of the previous three recessions.  The graphs begin six weeks before each recession began and show that the three previous recessions had lower unemployment rates and initial claims than the current recession after 125 weeks. 
Read more!

The Unemployment and Labor-Force Participation Rates

During a recession, the public and media place a great deal of emphasis on the unemployment rate (=unemployed/labor-force *100) as a measure of human suffering, but, like all statistics, it is subject to errors in measurement such as that caused by discouraged workers. These workers become "discouraged" by the bad job market and stop looking for employment. By definition, an adult must be employed or looking for employment to be in the labor-force, and must be an adult without employment but looking for it to be unemployed. An increase in discouraged workers causes an equal drop in the unemployed and the labor force and makes the unemployment rate lower as the labor market worsens. Conversely, a decrease in discouraged workers makes the unemployment rate rise as the labor market improves.

Period	1	2	3	4	5	6
Adults	1,000	1,000	1,000	1,000	1,000	1,000
Labor-force	660	657	654	651	653	655
Employed	601	598	595	592	593	594
Discouraged Workers (DW)	0	4	8	12	10	8
Unemployed	59	58	57	56	57	58
Labor-force participation rate	66.00	65.70	65.40	65.10	65.30	65.50
Unemployment rate with DW	8.94	8.83	8.72	8.60	8.73	8.85
Unemployment rate w/o DW	8.94	9.70	10.15	10.61	10.30	10.00

The example contained in the Table demonstrates how the employment rate can fall as the labor market deteriorates from period 1 through period 4 and then rise as it improves from period 4 to period 6. The number of adults who wish to work remains constant at 660. They do not all remain in the labor-force. The labor market deteriorates during the first four periods resulting in a decline in employment of 3 workers each period. As the market deteriorates, the number of discouraged workers increases by 4 each period, one worker greater than the number losing their jobs. Because discouraged workers are not part of the labor-force or the unemployed the labor-force falls from 660 workers in period 1 to 651 workers in period 4 and unemployment falls from 59 to 56 during the same period. Even though employment is falling, unemployment is decreasing because workers are leaving the labor-force. The unemployment rate falls from 8.94% in period 1 to 8.60% as the labor market deteriorates. If these workers had not become discouraged and had persisted in seeking employment, the unemployment rate would have worsened from 8.94% in period 1 to 10.61% in period 4 as should happen in a deteriorating market.

The labor market improves in the last two periods with an unemployed worker being hired each period. Sensing the improvement in the labor market, two discouraged workers rejoin the labor-force each period and are now counted as unemployed. As the labor market improves, the unemployment rate rises 8.60% in period 4 to 8.88% in period 6.



Using the labor-force participation rate in conjunction with the unemployment rate paints a more accurate picture of the labor market. The graph shows the U.S. labor-force participation rate measured on the left vertical axis and the unemployment rate measured on the right vertical axis from September 2007 through February 2010. Initially, the labor-force participation rate remains stable as the unemployment rate increases. Beginning in June 2008, the labor-force participation rate falls as the unemployment rate rises suggesting a rapidly worsening labor market. Between October 2009 and December 2009, the labor-force participation and unemployment rates fall, the exact situation as described in the table. The labor-force participation rate improved from December 2009 to February 2010 as the unemployment rate improved suggesting a strengthening labor market. This analysis rests on the assumption that the labor-force participation rate declined because many workers became discouraged. If correct, it may take many months for the unemployment rate to fall to historical levels as the discouraged workers reenter the labor-force.
Read more!

The Latest from the White House on Unemployment

Rebecca Christie and Mike Dorning of Bloomberg report in "Obama Aides See Jobless Rate Elevated for ‘Extended Period’" that employment will only improve slowly. 

March 16 (Bloomberg) -- U.S. employers won’t hire enough workers this year to lower the jobless rate much below the level of 9.7 percent reached in February, three Obama administration economic officials said today.

The percent of Americans who can’t find work is likely to “remain elevated for an extended period,” Treasury Secretary Timothy F. Geithner, White House budget director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, said in a joint statement. The officials said unemployment may even rise “slightly” over the next few months as discouraged workers start job-hunting again.

Implicit in this report is that the labor-force participation rate will improve throughout the year. 
Permanent link
Read more!

The 4-Week Moving Average of Initial Unemployment Claims Increases

The data released today in the "Unemployment and Insurance Weekly Claims Report" was not good.  The report states that

In the week ending Jan. 16, the advance figure for seasonally adjusted initial claims was 482,000, an increase of 36,000 from the previous week's revised figure of 446,000. The 4-week moving average was 448,250, an increase of 7,000 from the previous week's revised average of 441,250.

Robert J. Gordon researched the relationship between the 4 week moving averages of initial unemployment claims and economic activity and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. Barring a deep double dip recession, the average peaked at 658,750 for the week ended April 4, 2009.
Comparing the movement in the 4-week moving average during this recession to the previous three shows that the averages seem to be converging and yet the unemployment rate during the earlier three were either much lower or declining.  This suggest that something else is happening.  In "Decline in the Labor-force Participation Rate," I compared the labor-force participation rate of the past four recessions and found that the rate has declined more precipitously during the current recession. 

The 4-week moving average of initial claims, unemployment rate, and labor-force participation rate are probably tied to an omitted variable in the simple graphical presentations.  Two economists offer different explanations for the current slow recovery.  Martin Feldstein suggests that intervention was necessary, but that the interventions were flawed in "Missing the Target."  In "Massive Government Intervention Drove U.S. Deeper Into Depression," Thomas Sowell goes one step further and concludes that government interventions lengthen and deepen economic declines.  
Read more!

Decline in the Labor-force Participation Rate

The economy has improved; growth has resumed, albeit slow growth, but little if any of the improvement seems to have reached labor markets.  The most encouraging news is that the 4-week moving average was 440,750, a decrease of 9,000 from the previous week's revised average of 449,750.  This average has been declining for nine months, and in the past, its decline has signaled an economic rebound.  As we all know, "Past performance is not necessarily indicative of future results."  The unemployment rate remains at 10 percent and the labor-force participation rate has been falling like a rock.  Christopher S. Rugaber, an AP writer, observes in "Economy 101: Dropouts Hold Down Unemployment Rate," (abc News/Money) that

Nearly 2 million Americans have dropped out of the work force since last May — and if they hadn't, the unemployment rate would have risen a lot more dramatically over the last several months.

Either way, joblessness is quite high. The Labor Department said Friday the unemployment rate remained at 10 percent last month, the same as in November and just below the 10.1 percent rate reached in October. The October figure, which was revised down from 10.2 percent, was the highest in 26 years.

Rugaber mentioned the unemployment rate, which is calculated by dividing the unemployed by the labor-force and, to convert a decimal to a percentage, multiplying by 100 (unemployed/labor-force*100).  If there is a one-to-one decline in unemployment and the labor-force, a drop in both results in a decrease in the unemployment rate.  He did not mention the labor-force participation rate, which is calculated by dividing the labor-force by the adult population and multiplying by 100 (labor-force/adult population*100).  It is one of the statistics used by labor economists to take the pulse of labor markets which are weak if workers exited because they became discouraged by bad job prospects.  CalculatedRisk estimates that

If the participation rate was at the same level as in July, the unemployment rate would probably be around 10.8%.

I have included a couple of graphs.  The first shows the labor-force participation rate during the last four recessions.  The second shows the deviation of the labor-force participation rate from its average during the recessions and perhaps adds more emphasis to changes in the rate.  The data in the graphs began three months before the National Bureau of Economic Research concluded that the recessions began and is denoted in both graphs with a red vertical line.  The three recessions preceding the current had ended in the time frame included in the graph and is denoted with two black vertical lines. 

The only obvious conclusion is that the labor-force participation rate has fallen more during the current recession than the previous three.  Three of the four recessions experienced a decline in the labor-force participation rate.  The 1981-82 recession did not suggesting that other factors may have a larger impact on the rate than the strength of the economy.  The age of the labor-force is also an important factor and, as CalculatedRisk noted, was declining prior to the recession.  Although I do not believe that it is likely, perhaps the recession has hastened retirement.   

My next post on the topic will graph the relationship between the labor-force participation and unemployment rates. 
Read more!

November 2009 Unemployment

The government released two reports on unemployment that both indicate that the employment picture is improving and the economy is recovering. The 4 week moving average of initial unemployment claims of unemployment continued its thirteen week declining to 481,250 (Unemployment Insurance Weekly Claims Report), and unemployment for November 2009 fell .2% to 10.0% (Employment Situation Summary).

Given that the 4 week moving average peaked at 658,750 on April 4th of this year, it was likely that unemployment would peak soon as well. Robert J. Gordon did research looking at the relationship between the 4 week moving averages of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks.

The three graphs compare the current recession which began late in 2007 and one of the three previous recessions which began in 1981, 1990 and 2001. The graphs are not forecasts. I have not modeled the data with the goal of predicting future levels of unemployment. But the raw data does provide insights.

The first compares the current recession to the recession that began in 1981. At this point, the two look similar in depth and pace of recovery. The 1981 recession began a rapid recovery in the months immediately outside of the graphs' time horizon. Just eyeballing the graphs (and this is scientifically dangerous) suggests that if the 4 week moving average truly is a leading indicator of future employment trends, that the economy may experience a robust recovery.

The 1991 and 2001 recessions are somewhat different, both shorter from the peak of the previous economic boom to the highest 4 week moving average. In both cases,the unemployment rate declined slowly. Next months data will show unemployment beginning to fall approximately 15 months after the 4 week moving average peaked. During the 2001 recession, unemployment will peak 3 months beyond the graphed time frame, 20 months after the 4 week moving average peaked. If unemployment during the current recession has peaked, in will occur only 7 months after the 4 week moving average peaked.

The unemployment data suggests that unemployment begins to fall after the 4 week moving average peaks and between 84 and 128 weeks after the recessions began. It does not suggest that the 2007 will follow suit, or why the recessions ended. Did the recoveries occur because of smart policy or because markets recover on their own? Does policy help or hinder a recovery? If policy is successful, how were the policies employed to fight recessions similar and different?

My guess is that economists will consider these questions for a generation.

Read more!

The 4-Week Moving Average of Initial Unemployment Claims Updated to November 7, 2009

This post updates a graph comparing the 4-week moving average of unemployment claims through the week ended November 7, 2009 in "Unemployment Insurance Weekly Claims Report" with the average of the three previous recessions.  A little technical information of the graph follows the post.  Seasonally adjusted initial claims was 502,000, down 12,000 from a revised estimate of initial claims of 514,000 for the week ended October 31, 2009. The 4-week moving average decreased 4,500 to 519,750. The average is down 139,000 from its peak.

Robert J. Gordon did research exploring the relationship between the 4 week moving averages of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. This is bittersweet news.  While average has decreased, the rate of decrease has been painfully slow.   

Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I built a graph that compares the 4 week moving averages of initial unemployment claims for recessions that began in December 2007, March 2001, July 1990, and July 1981.  I have not attempted to adjust the initial claims data for changes in the size of labor market. The plots are measured over 112 weeks, beginning eight weeks before the recessions began. The horizontal axis begins in October 2007, the date the current recession began, and the data for the other recessions are superimposed on this date.
Replace this text with...
Read more!

Education and Unemployment (Repost)

Edward Glaeser notes that New York City has experienced a relatively small increases in unemployment compared to the rest of the country and provides various hypotheses to explain the circumstance in "Why Is New York’s Unemployment Rate (Relatively) Low?," for the New York Times. The hypotheses are interesting and should be read, but I linked to the article because Glaeser highlights the role of education as insurance against unemployment. I hope his observation inspires and motivates students to extend their educations beyond high school.

Despite the abundance of front-page stories with headlines like “Ivy League financier is now unemployed and homeless,” unemployment is remarkably concentrated among the least-educated Americans. Today, the seasonally unadjusted numbers show that 15.1 percent of high school dropouts are unemployed; the comparable number for college graduates is 4.2 percent.

Read more!

The 4 Week Moving Average of Initial Unemployment Claims and the Unemployment Rate

Robert J. Gordon did research looking at the relationship between the 4 week moving averages of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. Barring a deep double dip recession, the average peaked at 658,750 for the week ended April 4, 2009.  On October 8, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended September 19, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 521,000, down 33,000 from a revised estimate of initial claims of 554,000 for the week ended September 26, 2009. The 4 week moving average decreased 9,000 to 539,750. The average is down 119,000 from its peak, signaling a probable peak for this business cycle.

Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included graphs that compare the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007.  Each compares the 4 week moving average of unemployment claims and the unemployment rate of the recession beginning in 2007 to those of the previous recessions.  I have not attempted to adjust the initial claims data for changes in the size of labor market or the unemployment rate for changes in the natural rate of unemployment. The plots are measured over 108 weeks, beginning eight weeks before the recessions began. The horizontal axis begins in October 2007, the date the current recession began, and the data for the other recessions are superimposed on this date. The graphs gives some insight into why economists, politicians and others have expressed so much concern about the current recession.



The current recession seems to have the depth of the 1981 recession but the 4 week moving average has fallen more slowly now than in the 1981 recession.  Unemployment peaked at 10.8% and began to fall in January of 1983, but by May, the unemployment rate of 10.4% was still higher than the current unemployment rate of 9.8%.

The 1990 recession was shallower than the current recession both in terms of length, and depth.  It lasted eight months from peak to trough; the current recession has not officially ended.  The 4 week moving average hitting 501,250 forty-two weeks after the 1990 recession began compared to 658,750 seventy-four weeks after the current recession began.  The recovery from the 1990 recession was slow.  Unemployment was still rising two years after the recession began and would peak at 7.8% in June 1992, two months later than the time frame pictured in the graph.  Still 7.8% is two percentage points lower than the current recession and we do not know when it will peak.

The recession which began in 2000 was similar in length, and depth to the 1990 recession.  It lasted eight months from peak to trough, with the 4 week moving average topping at 517,00 thirty-four weeks after the recession began.  Unemployment peaked at 6.0% one-hundred weeks after the recession began.  Again, the current recession will last at least as long, experience higher levels of initial unemployment claims and unemployment.       
Read more!

Initial Unemployment Claims for September 12, 2009

On September 17, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended September 17, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 545,000, down 12,000 from a revised estimate of initial claims of 557,000 for the week ended September 5, 2009. The 4 week moving average decreased 8,750 to 563,000. The average is down 95,750 from its peak, signaling a possible peak for this business cycle. [1]

Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included a graph that compares the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. I have not attempted to adjust the data for changes in the size of labor market. The plots are measured over 106 weeks, beginning eight weeks before the recessions began. The horizontal axes begins in October 2007, the date the current recession began, and the data for the other recessions is superimposed on those dates. The graph gives some insight into why economists, politicians and others have expressed so much concern about the current recession. The current recession seems to have the depth of the 1981 recession but the 4 week moving average seems to be falling more slowly than it has in past episodes.

Shobhana Chandra of Bloomberg writes in, "U.S. Initial Jobless Claims Fell to 545,000 Last Week (Update1)," that

The job market may be starting to stabilize as government and private reports reinforce forecasts that economic growth will resume this quarter. Economists surveyed by Bloomberg this month said the unemployment rate will reach 10 percent this year, a reminder that hiring may not pick up for several months and that consumers likely won’t lead the recovery.

“It’s nice to see another move down in initial claims but the continuing number is definitely kind of sticking at pretty high levels,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “As long as we’re continuing to see pretty high initial and continuing claims, we’ll still have negative job growth.”

[1] Robert J. Gordon did research looking at the relationship between the 4 week moving average of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. The average may have peaked at 658,750 for the week ended April 4, 2009. 
Read more!

Initial Unemployment Claims for August 22, 2009

On August 27, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended August 22, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 570,000, down 10,000 from a revised estimate of initial claims of 580,000 for the week ended August 22, 2009. The 4 week moving average decreased 4,750 to 566,250. The average is down 92,500 from its peak, signaling a possible peak for this business cycle. [1]Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included a graph that compares the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. I have not attempted to adjust the data for changes in the size of labor market. The plots are measured over 103 weeks, beginning eight weeks before the recessions began. The horizontal axes begins in October 2007, the date the current recession began, and the data for the other recessions is superimposed on those dates. The graph gives some insight into why economists, politicians and others have expressed so much concern about the current recession. The current recession seems to have the depth of the 1981 recession but the 4 week moving average seems to be falling more slowly than it has in past episodes.

[1] Robert J. Gordon did research looking at the relationship between the 4 week moving average of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. The average may have peaked at 658,750 for the week ended April 4, 2009. 
Read more!

Initial Unemployment Claims for July 25, 2009

On July 30, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended July 25, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 584,000, up 25,000 from a revised estimate of initial claims of 559,000 for the week ended July 25, 2009. The 4 week moving average decreased 8,250 to 559,000. The average is down 82,500 from its peak, signaling a possible peak for this business cycle. [1]

Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included a graph that compares the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. I have not attempted to adjust the data for changes in the size of labor market. The plots are measured over 94 weeks, beginning eight weeks before the recessions began. The horizontal axes begins in October 2007, the date the current recession began, and the data for the other recessions is superimposed on those dates. The graph gives some insight into why economists, politicians and others have expressed so much concern about the current recession. The current recession seems to have the depth of the 1981 recession but the 4 week moving average seems to be falling more slowly than it has in past episodes.

[1] Robert J. Gordon did research looking at the relationship between the 4 week moving average of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. The average may have peaked at 658,750 for the week ended April 4, 2009. 
Replace this text with...
Read more!

Initial Unemployment Claims for July 16, 2009

On July 23, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended July 18, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 554,000, up 30,000 from a revised estimate of initial claims of 524,000 for the week ended July 18, 2009. The 4 week moving average decreased 19,000 to 566,000. The average is down 74,250 from its peak, signaling a possible peak for this business cycle. [1]



Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included a graph that compares the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. I have not attempted to adjust the data for changes in the size of labor market. The plots are measured over 94 weeks, beginning eight weeks before the recessions began. The horizontal axes begins in October 2007, the date the current recession began, and the data for the other recessions is superimposed on those dates. The graph gives some insight into why economists, politicians and others have expressed so much concern about the current recession. The current recession seems to have the depth of the 1981 recession but the 4 week moving average seems to be falling more slowly than it has in past episodes.

[1] Robert J. Gordon did research looking at the relationship between the 4 week moving average of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. The average may have peaked at 658,750 for the week ended April 4, 2009. 
Replace this text with...
Read more!

Initial Unemployment Claims for July 16, 2009

On July 16, 2009 the Department of Labor released the most recent data on initial unemployment claims for the week ended July 11, 2009 in "Unemployment Insurance Weekly Claims Report."  Seasonally adjusted initial claims was 522,000, down 47,000 from a revised estimate of initial claims of 569,000 for the week ended July 4, 2009. The 4 week moving average decreased 22,500 to 584,500. The average is down 74,250 from its peak, signaling a possible peak for this business cycle. [1]

[2]

Although the 4 week moving average is down significantly over the last several weeks, there may be anomalies in the data that make the decline a statistical glitch rather than an economic trend.  Ruth Mantell of Market Watch reports in "Initial jobless claims lowest since January," dated July 16, 2009 that

The number of initial claims in the week ending July 11 fell 47,000 to 522,000 - the lowest level since early January, the government reported...But the data are "clouded" because many of the expected temporary layoffs in the automotive sector have already occurred, a Labor Department analyst said Thursday.

"We expect a hefty rebound over the next few weeks," wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note. "The latest numbers are just far too good to be true...It is not good news, especially for the people concerned."

The government seasonally adjusts the data, assuming that auto layoffs will take place in early July. But many manufacturing layoffs, predominantly automotive, have already occurred, while others may come later or not at all. Analysts expect several more weeks of volatility in the claims data due to layoff-timing issues.

[1] Robert J. Gordon did research looking at the relationship between the 4 week moving average of initial unemployment claims and found that recessions often bottom out shortly after the 4-week moving average of initial unemployment claims peaks. The average may have peaked at 658,750 for the week ended April 4, 2009.

[2]  Using National Bureau of Economic Research estimates on the beginning and ending dates of recessions, I have  included a graph that compares the recessions that began in March 2001, July 1990, and July 1981 with the current recession which began in December 2007. I have not attempted to adjust the data for changes in the size of labor market. The plots are measured over 94 weeks, beginning eight weeks before the recessions began. The horizontal axes begins in October 2007, the date the current recession began, and the data for the other recessions is superimposed on those dates. The graph gives some insight into why economists, politicians and others have expressed so much concern about the current recession. The current recession seems to have the depth of the 1981 recession but the 4 week moving average seems to be falling more slowly than it has in past episodes.
Read more!

Minutes of June 23/24 Fed Meetings

(HT Drudge) Jeannine Aversa, an AP economics writer reports on the Fed's latest forecast for the economy in "Fed: unemployment will top 10 percent this year," Yahoo! News, July 15, 2009.

WASHINGTON – The Federal Reserve expects the economy this year will sink at a slower pace than it previously thought, but that unemployment will top 10 percent, according to a forecast released Wednesday.

The Fed now predicts the economy will shrink between 1 and 1.5 percent this year, an improvement from its old forecast issued in May. At that time, the Fed projected the economy would contract between 1.3 and 2 percent.

The upgrade comes from the expectation that the economy's downhill slide in the first half of 2009 wasn't as bad as previously thought. The Fed said the economy should start growing again in the second half of this year, although the pace is likely to be plodding.

Replace this text with...
Read more!

Biden on the Economic Recession

Scott Wilson, writing for the Washington Post in "Biden Acknowledges Administration 'Misread' The Economy," writes

Vice President Biden acknowledged today that the administration underestimated the depth of the economic recession months ago as it prepared a recovery package that is only now beginning to take effect.

"We misread how bad the economy was, but we are now only about 120 days into the recovery package," Biden said on ABC's "This Week." "The truth of the matter was, no one anticipated, no one expected that that recovery package would in fact be in a position at this point of having distributed the bulk of the money."

I read with incredulity. The administration underestimated the depth of the recession? Every news source from newspapers to radio and television to the blogosphere seemed full of economists stating that the economic crisis was the worst since the Great Depression. Democrats everywhere based their campaigns on the financial crisis and rising unemployment. Candidate and then President Obama said much the same. At his first press conference, which was held in the economically hard hit city Elkhart, Indiana, ("Transcript: Obama takes questions on economy," CNNPolitics.com, February 9, 2009) he said,

So what I'm trying to underscore is what the people in Elkhart already understand, that this is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression.

We've lost now 3.6 million jobs, but what's perhaps even more disturbing is that almost half of that job loss has taken place over the last three months, which means that the problems are accelerating instead of getting better.

A closer reading of transcripts of President Obama's speeches indicates that his administration's big interest has been and remains reforming policies that he believes have been neglected for decades.  These policies include the environment, health care, and education.  Form the his state of the nation address (CNNPolitics.com, February 24, 2009) President Obama said,

That is why, even as it cuts back on programs we don't need, the budget I submit will invest in the three areas that are absolutely critical to our economic future: energy, health care, and education.

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea...

Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives.

It will launch a new effort to conquer a disease that has touched the life of nearly every American, including me, by seeking a cure for cancer in our time.

And -- and it makes the largest investment ever in preventive care, because that's one of the best ways to keep our people healthy and our costs under control.

This budget builds on these reforms. It includes a historic commitment to comprehensive health care reform, a down payment on the principle that we must have quality, affordable health care for every American...

Already, we've made a historic investment in education through the economic recovery plan. We've dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life.

We've made college affordable for nearly 7 million more students, 7 million. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children's progress.

But we know that our schools don't just need more resources; they need more reform. And that is why...

That is why this budget creates new teachers -- new incentives for teacher performance, pathways for advancement, and rewards for success. We'll invest -- we'll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

Edward Lazear, a professor at Stanford University's Graduate School of Business, a Hoover Institution fellow, and President Bush's last chairman of the Council of Economic Advisers saw much of the same thing when he weighed in on the need for a second stimulus ("Do We Need a Second Stimulus?," Wall Street Journal, July 9, 2009).

With the economy weak and the labor market continuing to decline, there is now talk of a second stimulus (which is actually the third, counting President Bush's 2008 tax rebates). This would be a mistake. The truth is there hasn't been any stimulus to speak of so far this year. Moreover, what's being called stimulus is just a smoke screen for a permanent expansion of government. Let's start with some facts...

Congress and the Obama administration have used the economic downturn as an excuse to expand the size of government. Calling it a stimulus, they have instead put in place a spending agenda that will unfold over the next two years. Although a little over one-third of the American Recovery and Reinvestment Act of 2009 goes to tax relief, the rest is in the form of spending programs that will be difficult to stop once they are up and running.

Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.

Read more!