New jobless claims fall....but...

Jobless claims fall to 3-month lows

(Reuters) — Applications for initial U.S. jobless aid plunged to three-month lows last week, the government said Thursday in a report showing a better-than-expected improvement in the still-weak job market.

The Labor Department said 404,000 idled workers filed for unemployment insurance payments in the June 21 week, down 22,000 from a revised 426,000 a week earlier and the lowest since March 22.

Well, it's about time! Pop out the champagne, thumb your nose at all those "jobless recovery" naysayers.

What do you mean that's not the whole story? You mean there's bad news too?

The advance seasonally adjusted insured unemployment rate was 3.0 percent for the week ending June 14, an increase of 0.1 percentage point from the prior week's unrevised rate of 2.9 percent.

The advance number for seasonally adjusted insured unemployment during the week ending June 14 was 3,741,000, an increase of 43,000 from the preceding week's revised level of 3,698,000. The 4-week moving average was 3,724,500, an increase of 5,250 from the preceding week's revised average of 3,719,250.

So while there were 22K fewer new claims, nearly twice as many people failed to find jobs, and so had to continue to draw unemployment benefits.

And since no day of mine is complete without at least one reference to Bush I, should we take a quick peek and see if there are, once again, any similarities between Poppy and son on this issue?

[The x-axis represents the corresponding week during the 3rd year of the term.]

Not surprisingly, new claims peaked just after war with Iraq, and trended downward thereafter. But what the media seems to have missed, is that although an increase in new claims almost always results in a higher unemployment rate, a subsequent decrease in new claims need not have the same corresponding effect. Take the above chart, for example. In April, 1991, at the peak of new claims, the unemployment rate was 6.7%, up 1.5% from its low the previous spring [I put up a nifty graph back here, data courtesy of the BLS. But even as the number of new claims fell during the summer of '91, the unemployment rate continued to climb, albeit more slowly. This was due in part to the fact that although fewer people were losing their jobs, companies were still not hiring, and so new entrants into the job market, recent graduates, immigrants, moms returning to work, soldiers retiring from active duty, etc., while not laid off, were still counted, rightly so, as unemployed.

That the continued claims are still increasing should be a red flag to the current Bush Administration. Millions of students just graduated from high school, college and grad school, and will be pounding the pavement looking for work. If laid off experienced workers are still not finding jobs, and today's help wanted index is still at near record low levels, chances are the recent drop in claims will spell as much for job growth as it did in 1991.

A Picture Tells a Thousand Words

Remember, these graphs only go through 2000, so this is before the Bush tax cuts. Still, these wealthy people stand to lose a lot more from a crappy economy than they stand to gain from Bush's tax cuts--but when will they figure this out? Go read the whole NYT story. And hell, I pay an effective tax rate a bit over 20%, the same as 400 wealthiest taxpayers paid in 2000.

AB

Income Inequality

CalPundit has a great post on income inequality (hint: it's increasing, and it's not being offset by increased mobility). Read it. Then note how the income of the top 20% started increasing even faster right around the time of the Clinton tax hike (no, I'm not saying that the tax hike caused the acceleration, but rather that it clearly did not have a deleterious effect on incentives to create wealth at the top, as Republicans vociferously claimed at the time).

AB

Rate cut 1/4 point

To 1%, the lowest level since 1958:

NEW YORK (CNN/Money) - The Federal Reserve cut its key short- term interest rate Wednesday by a quarter percentage point to the lowest level in 45 years, expressing worry that the economy still isn't strong enough to fight off deflation.

Because the rate cut came in at the minimum level that people expect, it was already largely priced into the stock market, so don't expect to see much action there. It will help to keep finance rates around their current levels, continuing to prop up consumer durable goods and housing expenditures. Some of the effects will be attenuated by the fact that so many people expected a 1/2 point cut that those expectations will shift to expecting another 1/4 point rate cut at the next Fed meeting (in August)--so firms that might have borrowed now in response to a 1/2 point cut may choose to wait two months (for a second cut) before borrowing. On balance, it's a "hold the course" cut that, given the current course, seems a little timid. On the other hand, the Fed doesn't want to run out of bullets (it's got four left now).

AB

Expectation versus Reality

[I meant to post this yesterday when the Conference Board's report came out and I wrote it for Wampum, but Blogger pulled a typical fast one.]

Ever vigilant to spin economic news in the best possible fashion, the media put the best face on this morning's consumer confidence report:

Consumer Confidence Steady in June

By ADAM GELLER

AP Business Writer

NEW YORK (AP)--Consumer confidence held steady in June as growing optimism about the future offset worsening sentiments about current conditions, a private research group said Tuesday.

The New York-based Conference Board said its Consumer Confidence Index edged back to 83.5 in June from a revised 83.6 in May, following two consecutive months of increases. Still, the reading was better than analysts projected reading of 82.

Economists called the report modestly positive and said it shows that consumers, continuing to exhibit the optimism that followed the end of the war in Iraq and buoyed by reports of coming tax cuts, see better times ahead.

So, even though the index fell slightly, because it wasn't as bad as some market analysts expected, it's now good news. And what about those predictions anyway? With the passage of the purportedly stimulus-heavy Bush tax cuts, shouldn't economists expect that consumers would be brimming with confidence, anticipating that hefty check they'll be getting in the mail next month?

Well, it turns out that even that bad-but-not-so-bad number was only as good (bad?) as it was due to consumer expectations that things will soon get better. When asked about their current situations, it turns out things are actually getting worse:

[T]he report's present situation index declined to 64.9 in June from 67.3 in May. The number of consumers who say business conditions are good and jobs are plentiful both fell.

If the jobless recovery continues for any length of time, as those same analysts seem to indicate it might, how long before consumer expectations reflect reality, versus merely hoping for reality to match expectations?