61* (with an asterisk)

Thursday, July 24, 2003 | 12:12 PM

Today’s Jobless Claims* number pleasantly surprised economists: Initial claims decreased by 29,000 to 386,000. The forecast was for an increase of 3,000 new claims.

We have been watching the employment figure closely. To the frustration of policy makers and economists (not to mention job seekers), this post recession period has lagged historical recovery patterns (see chart below). Indeed, job destruction has continued for more than 18 months since the beginning of the economic upturn dating to November 2001. The previous six recessions had all shown marked improvement in job creation over the same period.

In our view, this is yet another sign confirming that the present recession/recovery cycle is unique. The economy should be (historically) creating more jobs at this point. Post bubble excess capacity, competition from globalization, and the continued move away from manufacturing are nagging factors preventing the economy from really igniting, despite record levels of fiscal and monetary stimulus.

New hiring would increase consumer confidence, raise spending levels, improve tax receipts – in short, accelerate the recovery phase across the broad U.S. economy. Unfortunately, this economy has been stingy in putting Americans back to work.

At first blush, today’s numbers* appear encouraging. Upon closer review, they are less significant than perhaps the initial jump in SPX futures warrant. We would like to buy into the good news, except for that darn asterisk. Seasonally, July turns out to be one of the least reliable months for extrapolating employment data. Automobile (and other) plants shut down for retooling; Manufacturing factories close for summer vacations. DJ Newswires quoted a cautious Labor Department spokesman saying the jobs “numbers should be viewed with caution, however, because claims data tend to be volatile in July.”

We agree, and think investors should be wary about reading too much into one potentially aberrational report. July is a tough month to read: Consider the past 3 weeks: July 5 saw claims rise 89K, with the next week up 69K, and now a drop of 128K. That’s a lot of volatility for one month.

By the end of Summer, we should have a much better read on the Initial Jobless Claims. Once the signal to noise ratio of the data gets cleaned up, we should be able to ascertain with more confidence whether this economy is really delivering job growth.

Chart of the Week
The dark line shows the movement of employment from May 2000 to the present and the shaded line the average over the previous 6 recessions.


Payroll Employment

fig3.gif
Chart Courtesy of NBER
(Source: Bureau of Labor Statistics, U.S. Department of Labor)


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