CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press New Unemployment Claims Data Are Not a Sign of a Recession

New Unemployment Claims Data Are Not a Sign of a Recession

Print
Friday, 19 August 2011 05:12

The business media have become obsessed with the notion of a double dip recession in a context where the economic data we are now seeing is not very different from the data that we have been seeing for months. These data point to a picture of an economy that is growing weakly, however it is still growing. However reporters who are now obsessed with the "double dip" are reading numbers consistent with weak growth as implying a recession. 

For example, a Washington Post article that raised the prospect of a second recession in the 5th paragraph told readers:

"The latest figures on unemployment, considered another key piece in any recovery, also proved disconcerting. The Labor Department said Thursday that weekly unemployment benefits again rose above the 400,000 level last week, a benchmark figure that many economists take as a sign of a declining economic trajectory."

Actually, economists who are familiar with unemployment data would not consider 400,000 new unemployment claims "a benchmark figure that many economists take as a sign of a declining economic trajectory." The reason is that unemployment claims have been above 400,000 in every week since the beginning of April, except for two weeks ago when there were 399,000 claims. Weekly unemployment claims were also above 400,000 in every week of 2010, a year in which the economy grew 3.1 percent.

The misplaced obsession with a double-dip has consequences because it creates a situation in which the slow growth that the economy is now experiencing appears to be good. For example, the July jobs report, which showed 117,000 new jobs, was widely seen as good news. However, this pace of job growth is only slightly faster than the 90,000 rate needed just to keep pace with the growth of the labor force. At the July rate of job growth it would take close to 30 years to replace the jobs lost in the downturn.

It would be helpful if reporters would try to discuss what the data show and not frame their story on misplaced optimism or pessimism from ill-informed commentators.


Comments (12)Add Comment
...
written by kharris, August 19, 2011 8:42
The focus on 400,000 new jobless claims as important is a very clear example of "magic number" thinking. One can do math to find some number of claims associated over time with [fill in the black], but 400k is just a round number that is fairly close to some of the numbers which have been churned out in such mathematical efforts. My recollection is that 400k claims WAS recessionary back in the 2001 period. Again in 2008. It wasn't recessionary in 2003, but rather more like now - lots of moaning about a weak labor market, but output was growing.

So apparently, the point at which we are in the cycle matters in figuring out what claims mean to the health of the economy. But again, 400k is just a big round number that can be treated as a magic number in order to tell as story.
Johnny Jobless Could be Worse Off in a Double Dip
written by izzatzo, August 19, 2011 8:57
The misplaced obsession with a double-dip has consequences because it creates a situation in which the slow growth that the economy is now experiencing appears to be good.


How's Johnny Jobless doing these days?

Not so well. He seems to be sick.

Oh no, he just thinks he's sick. It's all about attitude. Tell him to perk up his rational expectations and things will get better.

So how's Johnny Jobless doing now that it's a year later? Does he think he's still sick?

He's worse. Now he thinks he's dead.


Stupid liberals.
...
written by jumpinjezebel, August 19, 2011 1:58
Seems that one can use this type of data to tell a bad story or good story depending on who you have in mind to blame.
double dip
written by J, August 19, 2011 2:30
Best when reading claims in the media of a "double dip recession" to remember that to most reporters "recession"="market crash." When data that has been defined as bad comes out, everybody runs to pull out of their most overvalued stocks, or short the most overvalued ones they know about, or goes hard into precious metals on the mutually-fulfilling assumption that everyone else is going to do the same thing.

All of the drops in unemployment are coming from people being dropped from unemployment; the employment level isn't changing. The important thing is, as kharris says, that 400,000 number, because everybody assumes that number is going to trigger everyone else, so they are triggered.

If you actually do hear "recession" as "market crash," the predictions are very realistic. There's absolutely no reason for the market to be as high as it is, and everybody in the market is waiting for the big day when all of the dummies get wiped out, and trying to be all gold and shorts the day before.
Watching a kettle boil...
written by Carl Weetabix, August 19, 2011 3:01
Part of the problem is they read the tea leaves every other week. You really can't tell diddly based on employment being down one week and up the next. Trends need to be measured in quarters, not minutes.

However in this "instant gratification" world we we live in, we tend to read and react based on incredibly short windows that really make no sense...
...
written by Jerry Jones, August 19, 2011 4:17
izzatzo wrote:

"So how's Johnny Jobless doing now that it's a year later? Does he think he's still sick? He's worse. Now he thinks he's dead."

Wrong. Johnny is dead because you and your wrong-headed disciples didn't learn a thing from the Great Depression and you impose your Herbert Hoover economics on the rest of us at a time when it's obvious that we need Keynes to be raised from the dead.

Stupid looneytarians.
Since When Has the Financial Press Paid Attention to Data?
written by Robert Oak, August 19, 2011 5:05
My favorite are the "pre-release" articles trying to claim what the economic report will be. They are almost always wrong. I have no idea why these people jump on initial claims. It's ridiculous, which we noted when the < 400k initial claims was attributed to a ~+500 pt Dow jump last week. A number that is always revised for one, has been elevated as you note and isn't well correlated to GDP growth and roughly correlated to job growth (but over 3 months or so).

Hate to say this, but I think your 90k jobs/mon. to keep up with population growth is way too low. I suspect someone is using the current non-institutional population to employment ratio or the current labor participation ratio and that to me is miselading. One should use a labor participation ratio from at least 12/07 if not earlier. Even with lower non-institutional civilian population estimated monthly growth, I don't think you can calculate that low of a number unles you artificially use a lower labor participation rate, which is currently is at record lows, showing how many are now out of the count (out of the CLF). Sorry, you're usually dead on, but on this one I have to disagree. Lowest I'd go is about 125k jobs per month to keep up with population growth.
Job Growth Numbers
written by Dean, August 19, 2011 11:06
Robert,

The 90,000 jobs a month figure comes from the Congressional Budget Office's estimate that the labor force is growing at a 0.7 percent annual rate. This translates into 1.05 million jobs a year.
Also, BLS calculations for growth of the civilian population, multiplied by an EPOP of 61 percent, would also give you around 1 million a year. So, this seems to be in the ballpark.
Satire?
written by Jerry Jones, August 19, 2011 11:31
Hey, this izzatzo commenter sometimes may seem like he's writing satire, but I don't know after reading this:

http://www.freerepublic.com/ta...=no-change

http://www.freerepublic.com/~izzatzo/
Yes, satire.
written by StanR, August 20, 2011 4:23
Please don't insult the Beat the Press izzatzo with weak comparisons to less interesting izzatzos.
...
written by Jerry Jones, August 20, 2011 4:17
If this izzatzo is not the same izzatzo I've seen in other forums, then please pardon my confusion. On the other hand, I've read better satire (even if that's truly this writer's intent).
New York Mets
written by New York Mets, August 26, 2011 10:36

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives