December 3, 2020

Initial unemployment claims for the week of November 28 fell  75 thousand to 712 thousand after having risen 39 thousand in the previous week.  After reaching a peak of 6,867 thousand at the end of March, initial claims have been steadily declining.  That means that people are still losing their jobs, but at a slower rate than in other recent months.  Prior to the recession claims were averaging 200-225 thousand.  The still relatively high level of claims in recent weeks is an indication that even though the economy continues to recover, some additional workers are still losing their job each week.

In any given week two things can happen.  First, people lose their jobs (reflected in the initial unemployment claims data) and, second, people are hired.  The number  of people receiving unemployment insurance benefits is the difference between the two. If this series declines in any given week by, say 500 thousand,  it means that 500 thousand more workers were hired than were laid off.  That continues to be the case.

The number of people receiving unemployment benefits fell 569 thousand in the week ending November 21 to 5,520 thousand after after having fallen 281 thousand in the previous week.  So while people are getting laid off, an even larger number of people are being hired.  Prior to the recession roughly 1,725 thousand people were receiving benefits so we still have a ways to go but the labor market continues to improve rapidly.

Given the sizable decline in the number of people receiving unemployment benefits  the insured unemployment rate fell 0.4% in the most recent week to 3.8% after having declined 0.1%  in the previous week.  Before the shutdown started it was steady at 1.2% so it is still high.  This series reached a peak of 17.1% in the week of May 9.  It has been declining quickly — about 0.3% per week in the past four weeks.  There are 5 weeks left in the year.  If this rate continues to decline at its recent pace, it could be at 2.3% by yearend, and back to where is started by mid-January.  Amazing!

The decline in the insured unemployment rate tracks closely the drop in the unemployment rate.  The drop in this measure in the past several weeks suggests that the unemployment rate for November could fall 0.6% from 6.9% to 6.3% (our forecast).  The consensus appears to be for a decline of perhaps 0.2%.  And with the drop in the insured unemployment continuing into late November, we expect the unemployment rate to end the year at 5.8%

For what it is worth, we expect payroll employment to increase by 700 thousand workers in November, and the unemployment rate to decline 0.6% from 6.9% to 6.3%.

Following the 31.4% GDP drop in the second quarter, the $3.0 trillion of stimulus money provided a dramatic boost to growth in the third quarter which rebounded by 33.1%.  We expect an additional 10.0% gain in Q4.  As we see it, the economy does not need additional fiscal stimulus which is still being debated on Capital Hill.  It is spending that will needlessly widen the budget deficit and drive up the amount of government debt outstanding.  Does anybody care about that any more?

The economy fell into recession in March with a further decline in April.  But with the fiscal stimulus money being disbursed the economy turned upwards in May.  As a result, the recession lasted just 2 months — one-quarter of the 8-month duration of an average recession.

Stephen Slifer


Charleston, SC