How Bad is the U.S. Labor Market?
December 11, 2008
Here are four little facts you’re unlikely to find elsewhere.
- During the second half of 2008, new jobless insurance claims recorded big upward jumps in alternating four-week periods. New claims averaged 540.5 thousand workers per week during the latest four weeks to December 6th. That was 10.1% or almost 50K greater than 491K per week in the four weeks to November 8th, which in turn was not too much different from 484.8K in the four weeks to October 11th. But the 484.8K figure represented an 8.7% jump from 445.8K in the four weeks to September 13th, which had been almost identical to 446.0K in the four weeks to August 16th. Between the four weeks to July 19th and the four weeks to August 16th, new jobless claims advanced 16.8% from 381.8K per week.
- Last week’s new jobless insurance claims of 573K were the most since November 1982. November 1982 was also the month of the greatest post-1950 jobless rate, 10.8%, which also printed in the following month. The unemployment rate now is just 6.7%, 4.1 percentage points (ppts) lower than in November 1982. There has been a structural shift downward in the unemployment rate from historical norms, which has many analysts expecting the jobless rate to top out at 8.0% or less in this recession, over 2.5 ppts below the 1982 peak and a percentage point less than the 9.0% peak in May 1975. Those were the highs in the two most severe postwar recessions, each of which saw a peak to trough drop in real GDP of around 3%. If the current recession in fact sees U.S. GDP record a cumulative decline of more than 5%, I suspect that unemployment will crest above present consensus expectations, well above 8%, and maybe even beyond 9.0%.
- The level of continuing unemployment insurance claims last week was 4.43 million. One has to go back to 1974 to find a greater figure. There also had not been a larger decline of employment since 1974 than the drop of 533K in November.
- Nonfarm payroll jobs plunged by 1.256 million over the three months between August and November. That’s the largest three-month decline in employment since the period between November 1974 and February 1975. Unemployment tends to lag the cycle in GDP, because layoffs and hirings are not the first reaction of employers experiencing a sudden decrease or increase in demand for their product. Early 1975 came at the end of a recession. At best, we are now only in the middle third of the present downturn. We’re heading for a significantly higher postwar record high on this measure.
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