Thursday, August 11, 2011

Note on Unemployment Claims

Calculated Risk just posted the weekly unemployment claims.  I note the form of the bump up this year is entirely consistent with the view that the economy's main H1 problem was a mild oil shock beginning in about Feb/March with the sudden withdrawal of Libyan oil from the global economy.  Note that the slight elevation in new claims has been declining in recent weeks - just as global oil supply has been growing again.  In particular the advance figure for last week was 395,000.  Thus the recent stock market declines do not seem to have led to any increase in US layoffs, at least not so far.

As long as there is no new banking crisis, I don't see why the US economy is about to enter recession.


rjs said...

i'll agree with your analysis of the recent weakness, stuart, but what i think you're missing is the contractionary nature of the budget agreement just signed...

the economic policy institute estimated that the debt deal will end up costing the economy 1.8 million jobs in 2012, and even j.p.morgan estimates that "federal fiscal policy will subtract around 1.5%-points from GDP growth in 2012"; considering our recent GDP reports came in at 0.4% & 1.3%, a 1.5% hit to our current GDP growth rate would indeed put us into another official recession..*d_645537.html*h_-1ni8eo3

take that, & then the caution throughout the economy that recent market action will precipitate, & i think we're in trouble...

Unknown said...

No, the rise in layoffs had nothing to do with rising oil prices, it had to do with the Japanese supply chain disruptions due to the earthquake. Auto workers dependent on parts from Japan were temporarily laid off. Dock workers and truck drivers who transport Japanese cars had less work to do. Loan officers who process auto loans had less work to do. Etc.

The price of crude oil peaked in April. However, if you look at BLS job creation data you'll notice that job creation actually grew in April compared to March. In fact, you'll notice that as oil prices began to rise late last year, so did the pace of job creation. When prices fell in May and June, so did job creation. If rising oil prices destroy jobs, why did the pace of job creation rise mostly in concert with rising oil prices?

If you look at the data for unemployment claims you'll notice that the pace started rising in early April, just a few weeks after the earthquake. This makes sense since it takes some time for employers to figure out how the supply chain disruptions are going to effect their business. The pace of layoffs has gradually decreased the past couple months because the supply chain disruptions have been gradually easing.

As futher evidence of this claim, look at initial jobless claims for 1995. In early January of 1995, the Kobe earthquake struck Japan. Not coincidentally, initial jobless claims began rising just a few weeks later. There was no oil price spike or other disruption at the time to account for this. In that case it took much of the year for claims to go back down (and suddenly at the end of the year they spiked again due to the Clinton-Gingrich government shutdown).

Justin said...


"If rising oil prices destroy jobs, why did the pace of job creation rise mostly in concert with rising oil prices?"

Because of lags (or rather a series of lags). Accordingly, to the BP Statistical Review, average annual Brent crude rose 29% y/y in 2010 over 2009. And my Bloomberg terminal shows Brent at $107, which is up around 34% from the 2010 average. Unless there is a quick reversal, such moves will need to be digested over months and years, not just days.

And Stuart, I am less sanguine than you over this oil shock for two reasons:

First, the rise is not a spike (unlike 2008). It is a jump and plateau. With a spike, you just have to tough out six months or so of losses until the price comes back down. The value of the machinery and equipment on your balance sheet is not impacted. With a jump and plateau your balance sheet is impaired.

Second, we have just seen the S&P take almost a 20% hit in less than a month along with every other major global market. And what did Brent do? It had one intraday move below $100, but bounced immediately and is down around 10%. Oil traditionally moves like a leveraged play on global growth. It isn't doing that on the downside at the minute.