I have been expecting a better recovery than the consensus (“every W starts as a V”) and with it improvement in unemployment, at least until we go back down in a double dip (if we do so). While the official rate is that we peaked in October and have improved since, a look at unemployment claims suggests that we have been flat since October and possibly slowly worsening:
For investors, this is an important issue: if we peaked last October and have been improving (slowly) since, it raises the odds of the Fed normalizing rates in Q4. The consensus view is probably captured by recent statements by Geithner, who expects a flat unemployment rate for a while (as census workers come in and leave the rolls) and then a steady decline. The analysis above suggest that the “New Projection” may turn out to be as optimistic as were the original projections, with and without stimulus, also in this chart:
In California, hiring is picking up in Silicon Valley, but the State’s overall unemployment rate has increased to 12.6% and the “underemployment rate” (U6) is approaching 24%. The recovery such as it is remains highly uneven. We should not be surprised that areas with high value-added jobs improves, but overall the situation is still tenuous at best.
After the March unemployment report, Obama gushed about how substantial the improvement was and opined: “we are beginning to turn the corner.” Politicians will of course jump the gun, but investors need to be more circumspect.
The WSJ noted how large the margin of error in these reports can be:
The ranks of unemployed individuals grew by 134,000 last month From February to 15 million, the Department of Labor’s Bureau of Labor Statistics says. But it is also plausible, the agency says, that the number of unemployed rose by 500,000. Or, it could have fallen by 200,000. …
In other words, it isn’t even clear whether the number of unemployed rose or fell last month.
Art Cashin of UBS then gave us the last word:
Wow! To think that markets react to these numbers as though they were truly meaningful.
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