During the period stretching from the emergence of the subprime crisis into full
view in the summer of 2007, to the peak of the post-Lehman financial and
economic collapse during the winter of 2008-09, the watchword of this column was
IKGW – It Keeps Getting Worse. That reflected the ugly reality wherein the state
of the markets and the economy, in the US and elsewhere, kept deteriorating
faster than people – the general public and policy makers alike – could adjust
Eventually, the sheer magnitude of the policy response in the months
following the Lehman bankruptcy enabled the governments to “get ahead of the
curve” and to turn around first confidence and then the direction of economic
activity, from nosedive to gradual stabilization and then to slow
However, the recovery has run out of steam over the last
several months. This process has been gradual but remorseless. It is least
apparent in the stock market, where corporate profits continue to climb and, in
many cases, are approaching or even surpassing the pre-crash levels.
the other hand, it is least apparent in the labor market, where the supposed
recovery has moved from being “jobless” – i.e., not adding new jobs at anywhere
near the rate required to get the unemployment rate down – to being a
non-recovery, in which the economy is shedding jobs again.
The erosion of
the weak recovery in the labor market can be traced via a range of data,
published quarterly, monthly and even weekly. Of the latter, the most prominent
is the “initial claims for unemployment,” meaning the number of people who, in
the relevant reporting week, made a new claim for unemployment
This number jumps around a lot, so the best way of viewing it
is through the four-week moving average, which shows what the average number of
new claims was over the preceding four weeks. This climbed from a level of about
300,000 persons weekly in mid-2007 – reflecting the regular movement within the
economy of people losing their jobs and, in due course, moving to new ones – to
a peak of over 650,000 in early 2009.
It goes virtually without saying
that this latter level was without historical precedent, confirming that “The
Great Recession” was just that – by far the worst recession since the World War
During 2009, the level of initial claims gradually fell, reaching
some 450,000 by the end of the year. Historically, this was still a very high
level, on a par with that reached at the depths of previous recessions and far
from what would normally be considered recovery levels.
But the direction
was firmly downward, which meant that things were improving.
forecasts for 2010, published around the turn of the year, virtually every
analyst looked forward to a continued decline in the level of initial claims
Some noted that sub-400,000 levels would be needed if the
economy was to actually start growing again.
The economy did grow, in
terms of GDP, in late 2009 and early 2010 – and even in the second quarter of
this year, although the rate of growth was clearly falling by then. But the
shocking thing is that even from the start of the year, the improvement in the
initial claims data had petered out. The numbers bobbed around, but they never
fell convincingly below the 440,000 to 450,000 level. That spelled trouble, and
by midyear it was obvious to everyone that the labor market was signaling its
determined nonparticipation in the economic recovery that equity investors were
Over the last couple of months, things have gotten much
worse. Virtually every Thursday morning (US time) the weekly numbers are
published, and the headlines announce a “surprise rise in initial claims.” It’s
amazing, and ultimately absurd, how many times the analysts who predict this
number every week – and predict a decline every week – can be surprised. Worse,
most weeks see an upward revision to the data published the previous week,
meaning that the number of new claims was actually larger than originally
On Thursday, this process reached its inevitable outcome, when
initial claims hit 500,000 and the fourweek moving averaged rose to 482,500 –
its highest level since November 2009. The half-million level is a round number,
but it has no significance beyond that.
The real issue is the trend,
which is now inarguably negative. In fact, this is only a superficial aspect of
the deterioration taking place in the US labor market.
Far worse is that
once they lose their jobs and make their initial claims, people are finding it
ever-harder to get a new one. That is the most important aspect of the dire
state of the labor market, which is the key to the economy – because for most
people, it IS the economy.
On Main Street, jobs are far more important
than housing, which in turn is much more important than the capital
politicians, especially all those up for re-election this November, are
well aware of this reality – but seem unable to alter it.
For many people
that is unacceptable, and their response is a determination to alter the
As the summer winds down and the election season moves
into high gear, Main Street is going to take on Wall Street for control