During yesterday’s discussion with Doc Yardeni, he described an economy with employment so full that we couldn’t possibly hire 200k+ employees each month.
I disagreed. We know the labor force has shrunk considerably, and there are lots of highly qualified able-bodied individuals who would rather not work versus taking a job at a 65% pay cut. We also know it takes 150k merely to keep up with population growth, so a 200k month in a robustly expanding economy should be no big deal.
Paul Kasriel of Northern Trust has a different approach: He suggests looking at the initial jobless claims data. And instead of seasonally adjusting it, he suggests looking at the weekly initial jobless claims data on a year-over-year percent change basis — thus eliminating noise and bias.
The chart below contains such data going back to July 1999. It is complete with outliers related to hurricanes and 9/11. Through the noise, a signal can be detected. Paul observes that "Back in 2004, initial jobless claims were falling around 20% year-over-year. Currently, initial jobless claims are, for all intents and purposes, where they were a year ago. We conclude from this, therefore, that the demand for labor, while still growing, is growing at a much slower pace than it had in recent years."
Unemployment Insurance: Initial Claims, State Programs
% Change – Year to Year NSA, Thous
click for larger graph
Source: Northern Trust
"And by the way, the recent behavior of initial jobless claims clears up some ambiguity about the interpretation of the weaker payroll growth of the past three months. Some have hypothesized that the recent weak payroll numbers are a result of a shortage of employable bodies rather than slower demand for those bodies. If that were the case, we would expect that employers would be firing considerably fewer employees now than they were a year ago. In fact, they are firing about the same number each week.
And our best guess is that in the months ahead, the year-over-year percent change in new jobless claims will be trending higher. That’s one of the reasons we expect the FOMC to be cutting the funds rate by December 12 of this year or January 31 of next year." (emphasis added)
We think that makes lots of sense . .
Weekly Jobless Claims Confirm Softening Labor Market
Northern Trust, August 3, 2006