Recent unemployment trends in US..

Rob Valletta and Katherine Kuang of FRBSF analyse the recent rise in US unemployment rate and unemployment insurance claims.

Rising layoff rates during the spring of 2011 highlight renewed labor market weakness. Although job cuts among state and local governments have accelerated over the past few years, most of the recent increase occurred among private-sector employers. Following modest improvement in early summer, subsequent labor market performance has been uneven, indicating that labor market conditions remain fragile.

There is a nice graph which looks at unemployment insurance and recessions:

Because employers tend to shed workers when their sales outlook deteriorates, new UI claims are quite responsive to overall economic conditions. In that respect, they serve as a timely and direct measure of layoffs and underlying changes in the strength of labor demand. Figure 1 depicts the level of new UI claims, expressed in four-week moving averages to smooth out weekly volatility. The series is subject to wide cyclical fluctuations, with sharp spikes evident around the times that recessions begin, followed by declines of varying steepness during recoveries. 

Interestingly, UI claims picks up post recovery from recession. In the recession of 1982 and 1991 reasons for rising UI were different and for 2001 it is different:

In addition to their cyclical pattern, the level of new UI claims commonly registers temporary increases during recoveries, as indicated by the four episodes circled in Figure 1. 

Both episodes took place as monetary policymakers were tightening in response to concerns that the economy was overheating. The federal funds target rate rose by over a percentage point in both cases. By contrast, from July 2002 to May 2003, when the level of new UI claims rose by 54,000, the federal funds target fell by 0.50–0.75 percentage point. This episode of labor market weakness and monetary easing occurred as business activity was feeling the effects of a series of corporate accounting scandals, the SARS epidemic, and the buildup to the March 2003 invasion of Iraq. 

We see similar rise now but that does not mean it is recession time again:

During the soft patch in the labor market from late February to mid-May 2011, the level of new UI claims rose by 52,000, from 388,000 to a peak of 440,000. Larger increases in new UI claims occurred during the past three economic recoveries, although two of these increases took place during periods of monetary tightening. During the earlier episodes in 1984 and late 1994 through early 1996, the increases in new UI claims were 85,000 and 70,000 respectively.

The prior episodes of rising UI claims followed by sustained economic recovery indicate that the recent elevation of claims does not necessarily herald the start of a new recession—the dreaded “double dip.” Instead, such a rise can reflect a temporary soft patch in the road to recovery. Subsequent readings for 2011 show a partial and uneven reversal of the uptick, with the level of new claims declining noticeably early this summer, but then rising to a four-week average of about 420,000 as of mid-September. This is above the level of around 400,000 commonly associated with sustained job growth (see Atkinson 2010). That level had been reached earlier this year. 

Hmmm.. They look at other measures as well and see there is little progress on unemployment…

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