Of all the various measures of the economy we have at our disposal, one of the most consistent and real-time is the Unemployment Initial Claims, which comes out weekly. It’s nothing more than a measure of how many people filed for unemployment insurance in the previous week, so it’s a solid number that doesn’t come from a survey or other statistical measure.
It still has its problems, however. It’s noisy, bouncing up and down a bit each week – a problem taken care of by looking at a 4-week moving average. Initial Claims numbers also don’t tell us a thing about hiring, but rather how many lost their jobs.
It hasn’t been useful for at least two years as attention turned away from job loss to job creation that would absorb the surplus workers looking for employment. But it’s worth checking in with this handy number one more time because it has hit an important milestone – and may be as low as it will ever go.
The 4-week average of initial claims now stands around 300k people every week, or about 1.3M every month. That may sound like a lot, but as the chart below shows it’s back about where it was in 2000 and at its relative low point in 2006.
Hitting this mark is a great achievement. It means that we aren’t shedding jobs at a rate that can be considered abnormal in a dynamic economy. From the Job Openings and Labor Turnover (JOLTS) Survey we know that 4.9M people each month find work, and from other more closely watched employment surveys we know that jobs are growing at a bit of 200k each month in 2014. JOLTS lists 1.7M losing their jobs in a month, meaning 400k weren’t eligible for unemployment for one reason or another, and 2.5M quit to find a new job.
The “Quits Rate” is one of the measures that Janet Yellen has said she is watching, as it is near a historically low rate at 1.8% of all employees. Even at that rate it dwarfs layoffs.
How good is the current Initial Claims figure? It’s less than half the peak rate of 650k hit in March 2009. In September 2012, when the gain in jobs was only starting to pick up steam, it was still at 360k per month or a solid 20% higher than it is today.
What we can say this represents is that large and medium sized companies are not shedding jobs at a rate that exceeds the rate at which they are created. The ADP Employment Report separates out business by small, (1-49 employees) medium, (50-499) and large (500+). Small and medium companies have consistently created 75-80% of the new jobs found in their monthly survey, slightly ahead of their contribution to total employment.
Where total employment came back to the 2008 peak in March 2014, medium sized companies are only hitting their peak now and large companies are still shy of their peak set back in 2006.
One of the features of this or any other depression is that the economy which failed at the start of it has to be transformed into something relatively new before there is a strong “recovery”. That is why Barataria has referred to this as a “restructuring” instead, and insisted that it is a process, not an event. We can see part of that process moving ahead by the total employment share moving towards smaller companies. The highly dynamic nature of employment as shown in the JOLTS data is also positive.
The achievement of a consistent 300k Initial Claims figure is something of a milestone in this process. It’s about as good of a figure as we can expect. It means that the job market has settled down and there is no net tendency towards shedding jobs, at least not above and beyond the normal churn we could reasonable expect.
Count this as another milestone on the way towards the end of this depression. The process is still far from completed, and it won’t end until businesses feel confident reinvesting in themselves and the markets for capital and stocks settle down considerably. But at this stage, the worst of the problems aren’t being taken out on workers any longer.
Hopefully, turning this corner will signal the start of some upward pressure on wages, which is the only real way that income inequality will ever reverse. We still have years to go in this depression, but a solid base for a new and more equitable arrangement has yet to be formed for the next economy still forming around us.
Given that this marks a milestone in the process of restructuring, there are many links to articles that explain the positions taken and how this process should unfold over the next 3 years or so. Follow them if you have any questions, or ask questions below. Thanks!