Forgetting the Government Shutdown, Jobless Claims Look OK
With the federal government in partial shutdown mode for the past 16 days, furloughing as many as 800,000 workers at one point, initial claims for unemployment benefits “are likely to be distorted for some time,” Raymond James chief economist Scott Brown told Bloomberg after last week’s report from the Department of Labor’s Bureau of Labor Statistics. Ironically enough, the jobless claims numbers provide such an important measure of the health of the United States economy that it was among the few pieces of data released by the government during the closure.
While falling off from the six-month high recorded for the week ended October 5, first-time jobless claims remained elevated the following week. According to data released by the BLS on Thursday, initial claims fell 15,000 to a seasonally adjusted 358,000 in the week ended October 12.
Thanks to a huge backlog of applications in California and the government shutdown, initial claims for unemployment benefits spiked to 373,000 in the week before that. In fact, the Labor Department said 70,068 government workers who were furloughed had filed claims by October 5, but the department’s analysts could not provide an estimate of how many of those claims could be attributed to the shutdown.
Analysts had been expecting a much larger decrease, with the consensus estimate set at a 38,000-claim decline.
Jobless claims provide the first look at the employment situation for any given month, but since the weekly figures can be volatile, economists use the four-week moving average to understand wider trends. For much of the past two months, jobless claims have been trending down, which “suggests ongoing labor-market improvement,” as TD Securities strategist Gennadiy Goldberg told Bloomberg after the September 26 report.
However, for the past two weeks, the four-week moving average has been rising. Last week, the measure hit 336,500, an increase of 11,750 from the prior week’s revised 324,750. At 324,750, that figure represented a nearly 20,000 claim increase that sent the four-week moving average far above its six-year low of 305,000.
Improvements in the labor market are often hard to see on a week-by-week basis. In the week ended September 28, the total number of people claiming benefits in all programs was 3,928,697, a decrease of 82,725 from the previous week, ending three consecutive weeks of increases. That metric also remained below year-ago levels. There were 5,001,985 people claiming benefits in all programs in the comparable week in 2012.
Other unemployment data have been steadily decreasing for the past several weeks, as well. The number of people continuing to receive jobless benefits decreased by 43,000 to 2.86 million in the week ended October 5. Also, those individuals who have used up traditional benefits and are collecting emergency and extended payments dropped 46,400 to 1.38 million in the week ended September 28, the most recently available data.
The report did quantify the impact of the government shutdown to some degree, but it is important to remember that the underlying trends remain consistent with a steadily improving labor market. “It’s still abnormally high because of the shutdown, and it’s still California,” BNP Paribas economist Yelena Shulyatyeva told Bloomberg. “The level of claims overall, excluding the special factors, has declined to a healthy, normal kind of level but that does necessarily mean that payrolls growth will accelerate from now on. We still need to see hiring, and we don’t see that.”
Initial claims data — which serve as a proxy for layoffs — are only one part of the story; job growth has been comparatively much weaker. According to Department of Labor statistics, payroll additions averaged 148,000 jobs per month over the past three months, which compares to 224,000 at the beginning of the year. At the current rate of job growth, Brookings’s Hamilton Project shows that it will take eight years and four months to fill the so-called jobs gap left by the recession.
Yet an analysis of labor market conditions conducted by the Federal Reserve Bank of San Francisco found that, “beyond the decline in the unemployment rate, a broad set of measures reflect improvements in labor market conditions, and the leading indicators are moving in a direction consistent with a strong labor market.” These are the indicators that central bank policymakers examine for signs of “substantial” labor market improvement, which will then influence whether the Fed scales back its stimulus program.
The health of the labor market has not yet returned to its pre-recession level, but there “are encouraging signs of positive momentum,” the Fed noted. These indicators — the unemployment rate, payroll employment, jobs gap, capacity utilization, ISM Manufacturing Index, initial claims, and insured unemployment rates — are nearing historical averages.
That these six measures are moving in a direction consistent with a strong labor market is important “given that recent declines in the unemployment rate have coincided with declines in labor force participation, which has muddied the positive signal about the market’s recovery,” the Fed said. The labor market is improving along a variety of dimensions, not simply a few isolated measures.
There is another piece of the economic puzzle that must be considered: The political infighting in Washington over the federal budget and government spending has raised a red flag for employers, and while legislation passed Wednesday night will fund the government into 2014 and raise the debt ceiling, companies may put off hiring additional employees until the full economic impact of the shutdown has been quantified.
That wariness is not misplaced. In a Thursday speech before the Economic Club of New York, Richard Fisher, President of the Federal Reserve Bank in Dallas, voiced concerns about future shutdowns despite the Congressional truce.
“As long as inflationary expectations are held at bay, we can fully open the monetary throttle in an effort to deliver on the mandate Congress gave us to help achieve full employment,” Fisher said. “But it is for naught as long as the fiscal authorities are slamming on the brakes and leaving everyone in the dark as to how they will cure the fiscal mess they have wrought.”
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