No one should doubt that an economic recovery is underway. But no one should assume that the rebound is robust or destined to quickly bring economic healing on a broad scale. It’s different this time.
The trend, at least, remains positive on a number of metrics, including the latest numbers on workers filing unemployment claims last week for the first time. New jobless claims rose 11,000 last week to 444,000, the Labor Department reports. But as our chart below suggests, the latest data point is statistical noise. The declining trend, in short, remains intact.
Since peaking in March 2009, weekly jobless claims have been on a steady downshift. As we’ve written many times, starting with this piece from early last year, a sustained decline in this measure bodes well for an upturn in the economic cycle. We’ve been arguing for some time now that the downshift in jobless claims has legs and so the natural forces of recovery are set to grow stronger. The latest report on this front offers no reason to change our view for the near-term future.
Confirming the trend is the update on so-called continuing claims, which measures the number of workers who’ve been receiving unemployment benefits. This tally is also falling, as our second chart below shows. For the week through the first of the year (the latest number available on this data series), continuing claims were just under 4.6 million, a drop of 211,000 from the previous week and the lowest in almost a year.
These two trends, along with a range of other metrics we routinely follow and analyze in The Beta Investment Report, tell us that there’s a rebound underway. This isn’t necessarily surprising. Indeed, we’ve been anticipating no less on these pages for some time.
To be honest, forecasting an end to the recession and a rebound of some degree required no great powers of prognostication in the recent past. Although some were skeptical, we’ve been of a mind that the usual course in economic history would reassert itself once more. So far, so good. But as we’ve also been advising all along, the recovery is likely to be weak, particularly on the variable that matters most: job creation. The latest news on employment suggests no less. Another major sore point on looking ahead is the weakness in lending.
The danger is that the recovery process is at risk of faltering. But not yet, thanks to the organic forces of economic recovery, supported by the still-extraordinary degree of monetary stimulus. The combination is still quite potent (labor and lending being the primary exceptions). Nonetheless, the first test of the new normal will come in the second half of 2010, or so we believe.
In most post-recession periods of recent generations, the labor market came roaring back, albeit in lesser degrees in recent years. But for a number of reasons, that’s not likely this time. In any case, much will depend on how the trend in job creation fares in the coming months and quarters. For the moment, the good news is that the layoffs are receding and the ranks of the unemployed are no longer climbing. In fact, we expect that the jobless rate will turn lower in the months ahead, if only marginally. But the big test is still ahead of us.
The transition this time from an economic climate that’s no longer destroying jobs to one that’s generating new positions of some magnitude is likely to be rocky. It’s not yet clear how much job-minting capacity is coming, but we’ll find out soon. For what it’s worth, our expectations are muted relative to past cycles.