The Department of Labor released their advanced estimates of initial and continuing unemployment insurance claims yesterday. Initial claims came in at a seasonally adjusted rate of 361,000, an increase of 6,000 from the 367,000 of the prior week. Initial claims peaked at 367,000 in the last week of March 2009, and have since been in a downward trend, with the decline from peak to down being about 46%. In lockstep with initial claims, continuing unemployment insurance claims peaked at the end of May 2009 at 6.628 million. Since then, continuing claims have declined by 3.3 million, or about 50%.
With this background in mind, two questions come to mind when thinking about yesterday’s numbers: first, could it be that initial and continuing claims are bottoming out, and second, will Generation Y or Z ever see in their life initial claims of 300,000 and continuing claims of 2 million?
On the first, initials claims last bottomed out below 300,000 in February 2006, at the height of the housing and credit boom; continuing claims last experienced continuing claims below 2 million in October 1988. So, could the economy produce these results?
On initial claims, the labor market is only 67,000 or 18% away from the 300,000 threshold. Achievable? Well, judging by the trend in the bottoming of claims, probably not. The trough-trend of initial claims has continually moved up over the past decade (blue line). This is in contrast to the previous trough-trend (orange line), which exhibited flat to slightly declining trough points. The 10 years before the late 70s to early 2000s trough-trend exhibited clear upward momentum. So, will Generation Y see a 60s to 70s trough-trend or a 70s to 2000s trough-trend? Probably more like the 60s to 70s?
Why? A couple of reasons explain the speculation. First, Generation Y is more fluid in their employment choices and adapt at a quicker rate. They appear more prepared to deal with an unemployment situation. Second, the U.S. economy has probably accepted structural changes in the labor market and these changes are largely the force behind a permanently higher natural rate of unemployment.
What about continuing claims? The blue trough-trend line would indicate the end of the downward momentum (bettering of their employment prospects) for the long-term unemployed in about 8 to ten months. We’ll see, but the 80s or even the 2000s probably won’t be seen again for the reasons mentioned in the initial claims section.
Overall, have the claims figures bottomed out? My guess is within the next 8 months both will have bottomed out, at least according to the increasing trough-trend theory. Surprisingly, extending the trough-trend out six months coincides with the many scheduled tax increases, set to take effect January 1st of 2013. Funny how things work out.