Thursday, January 8, 2009

Claims offer a breath of fresh air...Is it tainted?

Despite a substantial weakness in the economy amid soaring announced corporate layoffs, jobless claims have plunged over the past two weeks from a recession high of 589K to their current 467K.

This drop is pretty much unprecedented based on recessions since the late 1960s. Claims have fallen by 122K from their peak in the span of three weeks. The only comparable sort of drop came late in the 1981 recession when claims slid 78K from 614K to 536 before rising to a new cycle peak at 695K.

Note that claims always have hit their peak in the 12 week before the end of recession or less. In the two previous long post-war recessions (1973-75 and 1981-82) claims peaked 10 weeks from those recession’s respective ends.

It is too soon to say that claims have peaked despite this since we know a lot of layoffs are still in the pipeline. And claims in the December-January period are fickle due to weather and holidays as well as the peculiarities of seasonal adjustment (i.e. if stores did not hire as much Christmas help because they braced for a poor Christmas, then they won’t be laying off as many after Christmas and this could mean lower jobless claims, especially because seasonal factors are looking for bulked up filings).

However, the non MFG ISM did bounce in December. It is still weak but looking less like a freefall. Claims have fallen sharply. There is some room for optimism on the economy, though it may be fleeting.

At this point the hint of fresh air is not enough to put a new stimulus package on hold. Remember the rule of Mini-Max. In bad times under conditions of uncertainty (aka reality) many pursue the strategy of Mini-Max. That means trying to minimize the damage that will occur if they make a bad decision. For policy right now the worst mistake to make is not to give stimulus if it isn’t needed but to withhold stimulus if it is needed. The stimulus plan should go through. In the mean time we should watch the incoming numbers closely. Thinks are getting interesting.

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1 comment:


Its hard to believe that theirs anything out their other than stale air.