The government shutdown plus delays caused by California's upgrading its job-related computer operations have skewed the numbers of first-time claims for unemployment compensation during the past few weeks. Even with those situations cleared up, Thursday's announcement of initial claims needs to be viewed cautiously.
For the week ending Oct, 26, seasonally adjusted initial claims for unemployment compensation fell to 340,000, the U.S. Labor Department reported. That's down 10,000 from the previous week's unrevised figure of 350,000. For the comparable week of 2012, claims were 367,000.
The four-week running average—which analysts prefer because it flattens volatility in the weekly numbers—continued to show the impact of the government shutdown, rising to 356,250, up 8,000 from the previous week's unrevised average of 348,250.
Despite the surge of unemployment claims accompanying the two-week shutdown, the average of first-time claims over the past three months is 329,000, well below the 360,000 average for the past 12 months. During the past four decades, the best one-year period for initial claims was August 1999-July 2000 when the weekly average was 285,000. Job growth for that period averaged 223,000 a month.
For both state programs and federally funded emergency unemployment compensation extensions that were instituted because of the Great Recession, the total number of people claiming benefits for the week ending Oct. 12 was 3,896,214. For the comparable week in 2012, there were 5,035,367 persons claiming benefits in all programs.
As I've previously noted, the steady fall in overall claims is partly a result of people getting jobs, exhausting their benefits or leaving the workforce altogether.
As I've also written previously, before the Great Recession, economists had seen first-time weekly claims of 400,000 as a predictor of healthy job growth. But that gauge has been revised downward to 370,000 in the past couple of years. And with first-time claims well below even that level for the past year, job growth remains tepid. For the past 12 months, the average monthly increase in jobs has been 185,000, but in the past three months, it's been only 143,000 even as first-time claims have fallen more than 30,000 a week below their 2012 average.
Thus, unless the increase in hiring starts rising substantially faster, first-time claims have become a poor predictor of job growth.
The continuing weakness in job growth helped persuade the Federal Reserve Board Wednesday to continue its $85 billion-a-month bond-buying program known as QE4, the fourth round of so-called quantitative easing in the past three years. The bond buys are meant to keep interest rates low and boost investment to produce jobs and keep the economy from slipping. But about half the buys are tied to banks' mortgage-backed securities, many of which remain in the toxic asset category. Thus, whatever else QE4 is doing, it's partly an on-going bail-out of the banks.