U.S. Job Layoffs and Consumption

April 15, 2010

The weekly data series of first-time jobless insurance claims essentially measures layoffs.  The elevated readings of 484K jobless claims last week and 460K in the week of April 3rd were purportedly distorted upward by the later Easter in 2009, but the four-week average tends to smooth out such noise.  The four-week average unfortunately was also elevated at 457.75K, little different from the 24-week average of 460K.  After a recession, job layoffs ebb, but hirings do not pick up until firms have run off some slack and become convinced that a second dip into recession will be avoided.  The stalled reduction in the layoff rate so far above the 400K per week level that ordinarily differentiates economic expansion from contraction is a worrying sign and suggests that it will be a lengthy time before unemployment drops below 9%.  At 9.749% in March, unemployment was only slightly less than last October’s peak of 10.1%.  That’s a very small improvement juxtaposed against real GDP growth over the two quarters between 3Q09 and 1Q10 that’s likely to be 4.5% at an annual rate.  U.S. economic growth of 4.5% still falls well below the experience of the first two quarters following America’s last severe recession in 1981-82 against which the current business cycle is compared often.  U.S. GDP climbed at an annualized rate of 7.2% in the first half of 1983, and that was good enough to reduced unemployment from 10.8% in November 1982 to 10.1% in May 1983 and 8.5% in November 1983.

U.S. consumers are still predisposed to spend beyond the limits of income growth. For those who’ve avoided getting a pink slip thus far, the coast looks clear.  The return of optimism has been abetted by a turnaround in home prices and, more importantly, the remarkable recovery of stocks that saw the S&P 500, DJIA, and Nasdaq climb 78.9%, 69.9%, and 97.4% between March 9, 2009 and April 15, 2010.  (Gold prices, by comparison, went up 25.3% in that span and didn’t pay dividends).  Retail sales closed out the first quarter with a big gain in March of 1.6%, suggesting that personal consumption advanced more rapidly in 1Q10 than overall GDP after tentatively rising 2.2% annualized in the second half of 2009.  The consumer’s spending addiction pre-dates the government’s and created the imbalances that led to the world recession.  In theory, the recession could have served a cathartic purpose, laying the basis for a new prolonged period of growing prosperity.  That may still happen, but the persistence of pre-recession habits suggests that more upheavals will probably be needed to complete such a transformation.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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