r 22, 2020

Initial unemployment claims for the week of October 17 fell 53 thousand to 787 thousand after having risen 75 thousand in the previous week.  After reaching a peak of 6,867 thousand at the end of March, initial claims have been steadily declining.  In the  past four weeks claims on average have declined 20 thousand per week,  That is a gradual but steady decline.  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 slower pace of decline in 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.

For the past several weeks the claims data for California were being estimated as it tried to catch up in the processing of their initial claims data.  During the pause the estimated level of claims for California was held steady at the same level that prevailed prior to the pause.  But when the revised data were reported this week the level of claims for the two prior weeks were revised downward significantly and the current week includes a correct level for California.

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 1 million,  it means that 1 million more workers were hired than were laid off.  That continues to be the case.

The number of people receiving unemployment benefits declined 1,024 thousand in the week ending October 10 to 8,373 thousand after having fallen 1,197 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 means that the insured unemployment rate fell 0.7%  in the most recent week to 5.7% after having declined 0.8% in the previous week.  Before the shutdown started it was steady at 1.2% so it is still very high.  This series reached a peak of 17.1% in the week of May 9 so, thus far, it has been declining quickly — about 0.7% per week and, contrary to the expectation of most economists, thus far it is showing no sign of slowing down. 

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 October could fall from 7.9% to 7.1% (our forecast) — or lower.  Given what is shown in the chart below it is not entirely possible that the unemployment rate for October — which we will learn about in two weeks — will dip below the 7.0% mark..

For what it is worth, we expect payroll employment to increase 1,000 thousand in October, and the unemployment rate to decline 0.8% from 7.9% to 7.1% but, as noted above, it could be even lower..

Following the 31.4% GDP drop in the second quarter, the $3.0 trillion of stimulus money will provide a dramatic boost to growth in the third quarter.  We current expect third quarter GDP growth to rebound by 28.0% with an additional 7.0% gain in Q4.  We will get our first look at third quarter GDP growth next Thursday, October 29.  As we see it, the economy does not need additional fiscal stimulus which is currently 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 that lasted just 2 months — one-quarter of the 8-month duration of the average recession.

Stephen Slifer


Charleston, SC