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Employment is improving, but too slowly

COMMENTARY Since I've been mostly doom and gloom lately, especially with respect to conditions in labor markets, let me point to a piece of moderately good news on the employment front. According to the latest weekly report from the Department of Labor, new claims for unemployment insurance continue to fall and are now below 400,000 (see here for why 400,000 claims is the approximate dividing line between creating and losing jobs):

In the week ending November 5, the advance figure for seasonally adjusted initial claims was 390,000, a decrease of 10,000 from the previous week's revised figure of 400,000. The 4-week moving average was 400,000, a decrease of 5,250 from the previous week's revised average of 405,250.

The pace at which claims are falling is much, much too slow -- at this rate it will be years before the labor market recovers -- but as this graph shows, at least claims are moving in the right direction:

Click on graph for larger image.

Source: Calculated Risk

Of course if the situation in Europe continues to deteriorate, claims could turn around and head back upward, but there does appear to be movement in the right direction (though, again, the pace of the decline is much too slow).

However, even though claims are declining, policymakers should not relax. There are considerable uncertainties ahead, Europe foremost among them, and policymakers should think about insuring against any potential fallout from the European situation by taking action now. It takes time for a change in policy to be felt in the broader economy due to lags in the policy process, and if policymakers wait to act they will be behind the curve (yet again). In addition, as noted above the pace of the recovery is far, far too slow. Here too both monetary (the Fed) and fiscal (President and Congress) policymakers could help through more aggressive policy. However, I don't expect we'll get any more help from fiscal policymakers, so our best hope is that Congress doesn't cut the budget too soon and make things worse. But there is noise from the Fed about taking more action. The Fed won't act unless conditions appear to be deteriorating, but at least it's under discussion. So there's some hope that policymakers will do more, but not a lot.

Overall I remain pessimistic about the evolution of the labor market. Job creation has been agonizingly slow and it's hard to see how that will change anytime soon. But for now at least things are no longer getting worse, and there's some hope that things are slowly getting better. However, those hopes that depend critically on the situation in Europe stabilizing, and at the moment it's not at all clear that it will.

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