Saturday, 21 of October of 2017

Economics. Explained.  

Initial Unemployment Claims

October 19, 2017

Initial unemployment claims fell 22 thousand to 222 thousand in the week ending October 14 after having fallen 14 thousand in the previous week.  While this happens to be the lowest level of claims since March 31, 1973, the Labor Department said that “Claims taking procedures continue to be severely disrupted in Puerto Rico and the Virgin Islands as a result of power outages and infrastructure damage caused by Hurricanes Irma and Maria.”  Hence, we should not read to much into the recent declines.   Claims had been averaging about 240 thousand prior to the hurricanes and should return to something close to that level.  The 4-week moving average is at 248 thousand.

Ordinarily, with initial unemployment claims (the red line on the chart below, using the inverted scale on the right) at 240 thousand  we would expect monthly  payroll employment gains to exceed 300 thousand.  However, employers today are having difficulty finding qualified workers.  As a result, job gains are significantly smaller than this long-term relationship suggests and are currently about 190 thousand.  For October we look for an increase of about 350 thousand as a snapback from the decline in employment reported for September.

With the economy essentially at full employment, employers will have steadily increasing difficulty getting the number of workers that they need.  As a result, they will be forced to offer some of their part time workers full time positions.  This series is still a bit high relative to where it was going into the recession.

They will also have to think about hiring  some of our youth (ages 16-24 years) .  But the youth unemployment rate today is the lowest it has been in 17 years so there are not many younger workers available for hire.

Finally, employers may also consider some workers who have been unemployed for an extended period of time.  But these workers do not seem to have the skills necessary for today’s work place.  Employers may have to offer some on-the-job training programs for  those whose skills may have gotten a bit rusty.  But even if they do, the reality is that the number of discouraged workers today is quite low — roughly in line with where it was going into the recession.

The number of people receiving unemployment benefits fell 16 thousand in the week ending October 7 to 1,888 thousand.  This is the lowest level for insured unemployment since December 29, 1973 when it was 1,805 thousand.  The four week moving average fell 23 thousand to 1,906 thousand which was the lowest level for this 4-week average since January 12, 1974 when it was 1,881.   The only way the unemployment rate can decline is if actual GDP growth exceeds potential.  Right now the economy is climbing by about 2.0%; potential growth is  projected to be about 1.8%.  Thus, going forward  the unemployment rate will continue to decline quite slowly.

Stephen Slifer


Charleston, SC

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