Does the year-long drop in initial jobless claims indicate a surging jobs market? Tyler Durden says:
Not necessarily. As we have noted in prior research, the structural relationship between jobless claims and employment growth changes over the business cycle. Unemployment insurance claims are an observable proxy for one type of labor market flow: the number of persons laid-off each month. However, employment growth is a function of other flows as well—specifically, the number of persons hired, the number who quit voluntarily, and those who separate from employment for other reasons. These other types of labor market flows—other components of Fed Chair Yellen’s labor market “dashboard”—can affect the relationship between layoffs and employment growth over time.
Moreover, initial jobless claims are an imperfect measure of layoffs because the propensity to file a claim—often called the “filing rate” or the “take up rate”—also changes over time.
Three other indicators going back all the way to the start of the Great Recession show that there’s still plenty of slack in the labor market:
• The labor participation rate is still falling, despite six-plus years of “recovery” and an official (and officially misleading) unemployment rate of around 5.1%.
• Stagnant or shrinking wages.
• The Fed’s continued reliance on zero interest rates to keep the rotten structure of our economy propped up.
Just yesterday the Wall Street Journal reported that weak economic activity will again force the Fed to back off even a modest increase in the prime. On our other two items, the National Retail Federation fears that sluggish wage growth will hurt the all-important holiday shopping season, and the most recent jobs report has been called “lackluster” and “worrying,” on top of downward revisions to the previous not-so-great jobs reports.
The question every presidential candidate needs to be asking themselves is, What’s my plan if the stuff hits the fan between now and Election Day?