May 22, 2003

Sigh. More Bad Unemployment News

D*mn! It is starting to look as though there weren't a lot of hiring and investment decisions being postponed until the Iraq situation was sorted out--or maybe people are thinking that things still aren't sorted out.

Jobless claims jump to 428,000 - May. 22, 2003: NEW YORK (CNN/Money) - New jobless claims in the United States rose last week, the government said Thursday, defying analysts' expectations for a fall and pointing to a labor market still struggling to recover.

The Labor Department said the number of Americans filing new claims for unemployment benefits rose to 428,000 in the week ended May 17 from a revised 421,000 the prior week. Economists, on average, expected 415,000 new claims, according to a Reuters poll.

U.S. stock futures gave up some of their earlier gains after the report but continued to trade higher, pointing to a positive opening on Wall Street. Treasury bond prices fell.

Many economists believe the 400,000 level of claims is a benchmark for labor-market weakness; others think that number should be higher. Regardless, few economists would argue that the labor market is particularly strong at the moment.

The U.S. unemployment rate is at 6.0 percent, matching the highest level since 1994, non-farm employers have cut 525,000 jobs from payrolls in the past three months, and payrolls still are 2.1 million jobs thinner than they were in March 2001, when economists at the National Bureau of Economic Research say a recession began.

After a modest recovery in early 2002, the labor market weakened again, and most economists said for months that the economy's biggest problem was the U.S.-led war with Iraq. According to their view, businesses would make long-term spending and hiring plans when the war was over.

However, the war has been over for weeks and jobless claims have been consistently high, drawing the attention of Federal Reserve Chairman Alan Greenspan, who warned recently they were a sign of business caution that could slow down an economic recovery...

Posted by DeLong at May 22, 2003 11:42 AM | TrackBack


All I have to say is ... "duh!"

Posted by: beerwulf on May 22, 2003 11:48 AM

There is always a reason, cold weather, rainy weather, pre-war worries, post-war worries, but we are losing jobs. Since the Fed began to cut interest rates we have lost 2.5 million jobs. Since the last tax cut we have lost 2.1 million jobs.

Capacity utilization is 74-75%, but there is steady talk of a new round of industry investment to bolster capacity. Huh? Why? Where is the new demand coming from? Well, we have another tax cut and this cut seems worse than the last cut. Less of a jobs impact and more of a structural deficit.

Good grief, I am worried.

Posted by: lise on May 22, 2003 12:03 PM

No worries. Now that the growth and jobs bill has been passed, we'll have more growth and jobs.

Alas, most of what the federal government is givig to me is being taken away be NY state and city. At least 2008 should be a high dividend year. Lots of jobs and growth then

Posted by: richard on May 22, 2003 12:05 PM

Oh, a growth and jobs bill is it? Thought it was a "class welfare" for the richie rich. We will all be dividending and capital gaining, each and every one of us accourding to our means.

Posted by: lise on May 22, 2003 12:35 PM

The press keeps repeating that the President got half the tax cut asked for, but this bill will be more skwed to the rich than the inital proposal and if the tax cuts become permanent [guess what Republican radicals want] the bill will be far more expensive. This is a huge tax cut that would seem to have little little little in the way of a jobs impact.

Posted by: jd on May 22, 2003 12:47 PM

Here are AG's thoughts on unemployment from yesterday's hearings:

"The start of the war and its early successes, especially the safeguarding of the Iraqi oil fields, were greeted positively by financial and commodities markets. Stock prices rallied, risk spreads narrowed, oil prices dropped sharply, and the dour mood that had gripped consumers started to lift: precursors that historically have led to improved economic activity. The quick conclusion of the conflict subsequently added to financial gains.
We do not yet have sufficient information on economic activity following the end of hostilities to make a firm judgment about the current underlying strength of the real economy. Incoming data on labor markets and production have been disappointing. Payrolls fell further in April and industrial production declined as well.
Because of the normal lags in scheduling production and in making employment decisions, these movements likely reflect business decisions that, for the most part, were made prior to the start of the war, and many more weeks of data will be needed to confidently discern the underlying trends in these areas. "

Mr Bush declared the war in Iraq over. However, the uncertainties surrounding Iraq are not over. Our troops are still in Iraq and Senator Lugar suggest they will be there at least 5 years. Our troops are still dying in Iraq. The outcome of Iraq is still in doubt whether or not the war outcome is in doubt. What if Mr. Bush just wanteed to get rid of Saddam and get out quick? Is that a different outcome than committing troops for 5 years and hundreds of billions in costs?

Not only were Nuke waste and historic sites unsecured but also lots of small arms, RPGs, etc. Will some of that walk across the Syrian border and into Hamas or worse?

There is still uncertainty among our trading partners in Europe. This will take a long time to sort. So AG in implying a lag between the end of war declaration by Mr. Bush and business being comfortable with the result may have hit it correctly.

Posted by: bakho on May 22, 2003 01:26 PM

The more I consider Alan Greenspan's statement, the less I agree. What is the reason for more business investment when capacity utilization is 74-75%? How much can consumers, who have spent liberally through the recession, add to consumption? Where is the new demand to come from?

Posted by: anne on May 22, 2003 01:48 PM


A prime source of new consumer demand would seem to be coming from home re-financing. There have been waves of re-financings these past 2 years. That has helped keep consumer demand high, but I too wonder if it can accelerate from here. Wages are rising more and more slowly. There must be SOME negative wealth effect from low bond yields and the bear market in stocks.

Posted by: dahl on May 22, 2003 01:57 PM

If (1) a primary source of new demand is home refinancing
and (2) as most people seem to agree, housing prices are in a bubble
should I be quaking in my boots?

(I'm no economist--maybe this is a complete non sequitur.)

Posted by: Matt Weiner on May 22, 2003 05:34 PM

Anecdotally, I work in the US insurance business despite being in Canada - and things are looking worse right now than they have looked in a long time. No stats, just the feeling I'm getting from talking to people.

The worst is not over.

Also, take a look at the geographic distribution of jobs - compare unemployment rates or job loss percentages to a red/blue map of the US.

Interesting, no?

Posted by: Ian Welsh on May 22, 2003 07:30 PM

The "exhaustion rate", the rate at which recipients of jobless benefits run out of those benefits, returned to its recent high in April. I mention that just to spread more joy and light.


Refinancing brings mortgage holders more money to spend in two ways. One is by allowing them to cash out some of the equity in their house. On the assumption that rising home prices represent a bubble (neither Greenspan - publicly - nor the latest bit of research from the Fed supports that assessment), that is the bubble part of refinancing. It is also possible to have more to spend by pushing the interest rate, so interest payments, down. That doesn't require reliance of the "bubble" and gives home owners more spending money every month.

Looks like refinancing is going to continue, for a while, at least. Home prices are stabilizing, but mortgage rates have hit a new low, so there are more home owners who have the opportunity to spend more without earning more.

Posted by: K Harris on May 23, 2003 03:59 AM

This notion that we were ever destined for a quick rebound in the labor market following the end of the war is a red herring. When has the labor market ever been a leading indicator of a recovery? I'm not defending the Administration's silly tax cut or its propaganda, but come on...

The Federal Reserve Chairman summarized the situation perfectly.

Posted by: Jim Harris on May 23, 2003 05:12 AM

Ian Welsh,
Also, take a look at the geographic distribution of jobs - compare unemployment rates or job loss percentages to a red/blue map of the US.

Interesting, no?"

Have you a clear reference of this? Is red/blue a reference to dem/rep voting USA States?


Posted by: Antoni Jaume on May 23, 2003 06:58 AM

Ian, do you have a linke to the state-by-state breakdown? I'm lazy.

Posted by: Barry on May 23, 2003 01:11 PM

Thanks K. Let me see if I've got this right: when interest rates drop, people on variable-rate mortgages wind up with more money, but are no more vulnerable to declines in property values. However, those who get more spending money by taking out new mortgages will be more vulnerable to declines in property values.

I don't think I can have that right, actually. Help!

Posted by: Matt Weiner on May 23, 2003 02:50 PM

The tail end of a post you made after this post;
this game of let's-fake-the-forecast is starting up again...
has my vote.

Posted by: Rook on May 23, 2003 10:17 PM


start here:

Here's a chart by State:

Also worth looking at, however, is Metropolitan regions.

Here are the State Results in 2000

Bottom line: for March Bush states had an average unemployment of 5.18 v.s Gore states with an average unemploymnet rate of 5.5. (Data sent to you by e-mail). I would be quite surprised if the average unemployment rates by state and curent deviations from that norm didn't show the skew to be even greater.

Posted by: Ian Welsh on May 24, 2003 01:56 PM

To amuse myself I calculated the average change in unemployment rate from December 99 to March 2003.

For States that voted Bush: 1.26%

For States that Voted Gore: 1.5%

In terms of average percentage change, the figures are as follows:

For States that Voted Bush: 36.18% average increase in the unemployment rate.

For States that Voted Gore: 43.45% average increase in the unemployment rate.

The next step would probably be to take into account the populations of the states, I suppose. However, I think the trend is clear enough. If anyone wants the spreadsheet drop me a note.

Posted by: Ian Welsh on May 24, 2003 03:30 PM
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