New Unemployment Claims: Like The Cough That Just Won't Go Away

Last Updated Jan 21, 2010 1:08 PM EST

The level of last week's new unemployment claims were surprisingly high, at 482,000 versus forecasts of about 40,000 fewer. The higher claims reflect a snag in data collection, rather than a weakening in the economy, but when combined with the other data point of the day -- leading indicators rising more than expected -- they are a reminder that while the broad economy may be recovering, somehow jobs are not. (Stocks sold off on the unemployment report, but most of the damage to share prices came after President Obama's latest proposal on financial regulation.)

On December 26th I came down with either a bad cold or mild flu, and while most of it went away within a few days, I am still coughing quite unattractively almost a month later. Half the people I know have had the same thing, so I figure it's not a big deal, but it reminds me many times a day that things could be a lot better in my private ecosystem.

The same with unemployment. Yes, the situation is much improved from where it was a year ago, between 600,000 and 700,000 new claims a week:

But the improvement is not nearly enough, and we are reminded of it so often. How sure can we be that somewhere out there new jobs really are being created? This graph shows the very recent record of new claims - seasonally adjusted, but not the smoothed four-week moving average we often see.

The government says the latest bounce is due to delays in reporting due to the recent holidays, rather than the fundamentals slipping, but I question how they can be sure in the short run.

Economist Alan Levenson of T. Rowe Price Group sent out a research note this morning, remarking that nobody really knows, but he presented his own interpretation of last week's figures as "one possibility, based on the assumption that the prevailing downward trend remains intact." The black dot on the second graph shows where his estimate would fall.

I'm sure his math is impeccable, but I really hope he's right on that downward assumption, because the banks' results of the last few days -- note that I call them results, rather than earnings, in view of the large losses they've booked on their consumer businesses -- show that the consumer is still in really tough shape. In order to get back to lending, banks will need to see an improvement in credit quality, which follows from higher incomes, which follows from more jobs.

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