Thursday, July 16, 2009

Is This "The Spike?" It's Beginning To Look A Lot Like The End of the Recession in 2001

FT.COM -- The number of US workers claiming unemployment benefits fell to the lowest level since January last week, as the pace of job cuts eased and car companies shifted the timing of their layoffs. New jobless claims fell by 47,000 to 522,000 in the week ending July 11, according to the Department of Labor. The less volatile four-week average of new claims also declined last week, falling by 22,500 to 584,500 (see chart above).

MP: The 22,500 drop in the four-week average of new jobless claims was almost the largest weekly decline on record - there have only been two previous larger declines in history (back to 1987 according to Dept. of Labor records): a 41,500 decrease in 1992, and a 26,250 decline in January of this year. The chart above also shows a strong similarity between the 80,000 decline in jobless claims (four-week average) from the peak in 2001 and the 74,2500 decline from the early April 2009 peak.

Could this be "The Spike" that Dennis Gartman has been looking for? From today's "The Gartman Letter":

To this we add the notion that last week’s jobless claims number might well have been “The Spike” downward we’ve been commenting upon and awaiting for the past several months. As we’ve written about here countless times over the past several years, “claims” turn down almost spot on the turn upward in economic activity. Its history is almost as uncanny as is that of the Ratio of Coincident to Lagging Indicators.

Last week’s “claims” were somewhat suspect given that they were compiled during the week of the July 4th holiday, so we shall look at today’s claim’s with rather heightened anticipation. If they remain weak and are not seasonally adjusted away in some fashion we shall be much impressed. So too should everyone else. If claims are still below 600,000, then the “spike-iness” of last week’s number will obtain, and when aligned with the recent turn upward in the Ratio of Coincident to Lagging Indicators shall be reasonable proof-positive that the recession’s end is hard upon us.


At 7/16/2009 2:14 PM, Blogger Hot Sam said...

From the most recent peak, the four-week moving average of initial claims has declined by an average of 5966.66 per week.

That means if the rate of decline continues as it has, it will take approximately 44.33 weeks to return to the 320,000 level which appears to be the recent "norm" in this graph. So we'll be back to full employment on May 17, 2010 which is fairly indicative of a recession ending about now.

The problem is that initial claims will not continue this high rate of decline. During the last recession, the decline reversed direction twice and then gradually declined taking 127 weeks to return to normal. Why should we expect any better from this recession?

If initial claims decline in this recession at the average rate they declined in the last recession (about 1315 per week), it will take 201 weeks to reach 320,000 initial claims, returning to full employment on May 19, 2013 - four years from now.

But let's suppose we've established a new, higher "norm" of initial claims at 400,000 - the 2005 peak. Using the rate of recovery from the last recession (which was mild in comparison to this one), we will return to 400,000 initial claims in 140 weeks, returning to full employment on March 19, 2012 - almost 3 years from now.

If initial claims rebound at the faster rate of the 1990 recession (2130 per week), we will reach 400,000 claims by December 28, 2011.

But all evidence seems to suggest that job recovery is slowing from one post-war recession to the next. Fasten your seat belts. It looks like we're in for a bumpy ride.

At 7/16/2009 9:19 PM, Blogger Jack McHugh said...

Please respond to Mort Zuckerman in yesterday's Journal.

At 7/17/2009 3:25 AM, Blogger Hot Sam said...

Do you mean this article Jack?

At 7/17/2009 9:43 AM, Anonymous bart said...

If one adds extended benefits and EUC etc. into continuing claims, they have not peaked and are far from it.


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