New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.
The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That's much higher than Wall Street economists' expectations of 505,000, according to a survey by Thomson Reuters.
That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.
The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.
In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.
This is not good news. However, there is a silver lining in a somewhat reverse psychology way (or at least I think so).
Remember, I'm working from the assumption that the worst we'll see in job losses is a 50% loss of all jobs created during the last expansion. Accelerating job losses indicate we're moving into phase 2 of the recession -- the period when companies start laying off larger numbers. Compounding this issue is we're at the end of a fiscal year for most companies. Management is thinking, "let's just get this over with before the end of the year so it's reflected on this year's earnings." It's akin to ripping the bandage off quickly simply to get it over with.
I still think we're going to see the recession end by the third quarter of next year. A fair amount of that thinking is based on an aggressive response from the incoming administration. In a recent column I advocated for a massive fiscal stimulus. Assuming this occurs I think we'll be alright.
For more on my thinking regarding this subject see this article
4 comments:
Remember, I'm working from the assumption that the worst we'll see in job losses is a 50% loss of all jobs created during the last expansion.
I recall a phrase from the overview my employer gave me on 401k's. The phrase was, "past results are not indicative of future returns." There's no particular reason to assume that we'll not lose more than 50% except that we've not done that since the Great Depression.
However, there's no particular reason to believe that past is prologue here. This recession may be the worst since the Great Depression. We may see greater layoffs than in previous recessions.
My concern is that there's no evidence of any floor showing up in the economy anytime soon. The credit market is better but still bad. Employment levels are falling. Consumer demand fell off a cliff. The big auto manufacturers are having to borrow $25 billion from the government just to keep running. Companies that are struggling are falling more easily because of the difficulties of accessing credit.
Today in the news there's talk of Citi having problems. That's another too big to fail institution. Who's going to be left to buy up whatever value there is in their assets?
Look, I don't mean to be doom and gloom, and I really hope you're right, but this all seems like it's a lot worse than the usual.
Here's the great thing about being an economist and a lawyer -- I don't have to give anybody a straight answer.
There is nothing inherently wrong with what you are talking about either.
Hehe, indeed :)
I definitely hope you're right though.
I sure hope you're right on this Bondad. I planned for this mess for about ten years but wasn't planning on a prolonged recession/depression. I see only one way out of it which will involve a New New Deal. Don't like the idea? Then hold your nose and swallow hard. The alternative is total collapse.
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