Spit-balling employment used to be easy. Just watch the tape at 8:30 a.m. easternrn every Thursday mornrning (that’s the release schedule for the U.S. Initial Jobless Claims) and you’d have a pretty good idea as to whether things were improving or cracking up.
The measure of new jobless claims in the U.S. economy represents people who are filing for unemployment benefits for the first time. Typically a number below 300,000 or so means there’s a solid employment picture because few people are losing their jobs.
A number above 400,000 is something of a warnrning sign because obviously more people are losing work.
Unfortunately, there are two components missing here that can render this number next to useless…
1) A reading between 300,000 and 400,000, and
2) A discussion about how many jobs are being created in the economy.
For about the past year, the jobless claims number hovered around 375,000 and has recently fallen to around 335,000. Some months it has been more, some months less. Unfortunately, a reading in the 300,000-400,000 tells us absolutely nothing…
When Hurricane Sandy hit, the measure spiked above 420,000. Then, near the end of January the reading fell to 330,000. Both were outliers so they carried little weight. The four week average is still sputtering, having declined slightly but still in no-man’s land.
At the same time, the economy is not adding many jobs. There were net gains of around 200,000 jobs in November and December, a net gain of 157,000 jobs in January, and finally a gain of 236,000 jobs in February. There are roughly 150,000 new workers in the workforce each month. Adding barely more than enough jobs to absorb these new workers is not going to do much to alleviate the unemployment of millions of Americans.
Break this all down and it means one simple thing: employment is still in the dumps. Yes, there have been signs that the labor market is no longer crumbling and that’s good. But it’s not the same thing as solid, steady growth.
This is what’s so frustrating about reading the paper or listening to market pundits talk about jobless claims and even unemployment. They make it sound as if there is continual improvement when really we are simply treading water.
To create lasting growth in our economy, we need steady domestic demand. For that to happen, we need clarity when it comes to personal finances (taxes, health, energy, etc.). We need to reign in the wild debt-fueled spending of our governrnment. We need the Federal Reserve to get out of the rate-setting business and the money-printing game.
Until those things happen, tepid demand will keep us in a patternrn of tepid employment… and changes in statistics like U.S. jobless claims will simply be noise.
Keep an eye on them, but for now don’t give them any power in influencing your financial or investing decisions.
Ahead of the Curve with Adam O’Dell
If you want to know where stocks will go over the next several months… look to bonds. These markets are intimately linked. Moves in one (bonds) foretell moves in the other (stocks).