June 12, 2009
ANTICIPATING THE END, STILL WORRYING ABOUT THE BEGINNING
It's still not over, but it's getting close.
When we took a hard look at initial jobless claims as a leading indicator this past March, we wondered if this data series would live up to its historical record as a robust clue about the end of the recession. The answer is always in doubt in real time, but yesterday's data points certainly keep hope alive.
New filings for jobless benefits dropped to 601,000 last week, the lowest since late-January, the Labor Department reported yesterday. To the extent these reports hold true to their record over the past 40 years, there's still reason to think that the technical end of the recession has arrived or is imminent.
A bit of corroborating evidence arrived in yesterday's retail sales report, which revealed a seasonally adjusted rise of 0.5% for May, the first monthly rise since February. That's certainly welcome, all the more so since the gains were fairly broad, albeit with some exceptions. Nonetheless, there's a reason for our qualifying label of "technical" above in considering the end of the recession now or in the near future.
Indeed, one need only look at the still huge number of continuing claims for jobless benefits to recognize that the ranks of the unemployed have swelled to extraordinary levels and remain at painfully high levels. That bodes ill for a sustained rise in retail sales for the foreseeable future as well as a robust economic recovery that would be hailed as a real expansion on Main Street.
It's worth noting that the December 2007 start of the current (or recently ended?) recession, as per NBER, was only obvious well after the fact. Although there was growing wariness among some analysts and investors as 2008 unfolded, it wasn't until midway in the year that the writing was finally on the wall for all to see. No less will be true in reverse, and then some.
The depth of the past and current ills weighing on the economy will remain a heavy burden for many quarters and, to some extent, several years. The risk of a double-dip recession can't yet be ruled out. Ditto for worrying about a mild, virtually unrecognizable rebound that looks and feels like a weak recession to the man on the street.
It wouldn't surprise us if, late this year, NBER looks back and declares that the recession ended midway in 2009, or thereabouts. But while the technical finale to this nightmare is certainly welcome, what worries us is what comes after. This time, there's more reason to wonder than usual. Yes, the end may be near, but the beginning is still further away than it appears.
Posted by jp at June 12, 2009 9:34 AM
The trend rather than the absolute numbers is the critical issue. Even assuming the government's fudging the numbers, as long as the fudging is consistent wouldn't change the analysis. It's reasonable to assume that the methodology is flawed. Par for the course in economics. But a continued application of the same flawed model would still offer valuable insight through time. Even so, it's still one factor, and so we must look to multiple data series.
Posted by: JP at June 15, 2009 10:16 AM
Demise and downsizing and to overseas shipping of jobs caused by GM and Chrysler bankruptcy. Numbers in the 10's of thousands of manf jobs lost, have not hit the skewed stats yet . I wonder that you are not a believer in the real unemployment stats , some as high as 20%. Those that have simply given up on finding a job . I see a mass exodus from the rust belt states ( if they can sell their homes ) to where there (may?) be jobs , of course at 50% less pay. The Kool-Aid is having its effect on your vision it seems . Heres a green shoot to nibble on .
Posted by: BILL at June 14, 2009 7:03 AM
from this chart i see a full 5-wave pattern jobless claim uptrend (recession), the first of which began around oct 07. the third wave began around july 08. the fifth began around jan 09. the downtrend (end of/decline from the recession) seems to have begun in march 09, curiously when the market turned up. i would say 6 months from then (sept 09) the recession end will become obvious, and declared as such by the NBER.
would appreciate all thoughts, pro and con,
on my observation/interpretation of this chart.
thank you for this article.
Posted by: tom at June 13, 2009 9:00 AM