As with every other Thursday, this week brought two new pieces of information to labor market observers – the initial and continuing unemployment claims figures. On a seasonally adjusted basis, initial claims came in at 388 K, an increase of 46K over the prior week, while continuing claims figures came in at 3.252 million, a decrease of 29 K for the week prior.
What do the new figures make things look like on a year to date basis? On a year to date basis, initial claims are about 3%, a steady deceleration from the 12% decline seen in 2011. When looking at the continuing claims figures, the rate of improvement has also slowed by a good amount, with the improvement rate going from 9% in 2011 to 7% this week. It’s this overall deceleration that has analysts worried. If the employment market improvement is already close to the end of the generally cyclical improvement phase, and with unemployment standing at 8%, that doesn’t bode well for the long run nature of the American work force. It likely confirms an unhappy new normal. Of course, we’ll get a much better idea of the new normal in the coming year.
With this background, do the claims figures mean anything to the presidential election? Probably. The following figure contains the initial claims figures at the time of a given November election. There are five instances of comparable magnitude.
The first is in 1976, when Carter beat Ford for the presidency. This situation represented a switch in the party in power.
The second situation of comparable magnitude is in 1980, when Reagan beat the incumbent Carter.
The third situation is when Reagan beat Dukakis in 1984, even though initial claims were running at 393K at the time.
Finally, the fourth comparable situation is when incumbent president Bush lost to the Clinton challenge.
As mentioned, the fifth situation, the 2008 win for Obama over McCain, was also a situation of presidential party power switch.
In all, four out of the five instances when claims have been this high the incumbent party or president has been dismissed from office. From this perspective, Romney should have an 80% chance of winning, compared to the current Intrade odds of about 35%. Why? Well, the easy answer is simply that many other factors are at play besides the economy. Another answer is that Intrade Obama holders are stupid or biased. My guess is the latter, but we’ll see in a couple of weeks. One thing is for certain: the labor market is pointing towards a Romney victory.