Unemployment: The Number To Watch

Amid all the so-called “green shoots” that persuade some people the economy is on the road to recovery, employment numbers are conspicuously absent.  Yet unemployment is really the core problem in many ways.  Jobless people don’t spend much money, they certainly don’t add money to savings, and they generate additional costs for the rest of society.

Each week, normally on Thursday morning, the U.S. Department of Labor publishes data gathered from the state agencies that process claims for unemployment insurance.  I keep a close eye on these numbers because they are a key indicator of where the economy is going.  As with all statistics, there are many assumptions and adjustments that can be misleading, but the broad trends that you see over time are very useful.  And right now, they aren’t good.

The weekly report from DOL has two key numbers: initial claims and continuing claims.  Initial claims represent the number of people who applied for unemployment benefits in the week being reported.  The report released today covers the week ended May 23, and reveals that 623,000 people applied for benefits that week.

Keep in mind that applying for benefits doesn’t mean you will receive benefits.  Not everyone in every situation is eligible for unemployment insurance, and the rules can vary between states.   Nor does this number tell us anything about how long these people have been unemployed or how long it will take them to find a new job.  It’s just a one-time snapshot of what happened in one week.

Continuing claims is the number of people who were actually receiving benefits during that week.  This number stands at 6,788,000 as of May 16.   By next week some of those people will find jobs and leave this list, newly unemployed people will be added to the list, and people who remain jobless will stay on the list.  The net result, unfortunately, is that continuing claims have been climbing quickly.

This chart, from the excellent Calculated Risk blog, shows you the historical trend in both initial claims (blue line/right scale) and continuing claims (red line/left scale) since 1971. (Click here for a larger version.)  Note the huge spike in the last year.  It dwarfs previous recessions partly because the population has grown over time, but is still startling.  The downturns in 1974-75, 1979-82, 1989-91 and 2000-2001 look mild in comparison.

Despite what you may hear, the economy cannot recover until the number of unemployed people begins to fall.  And for that number to fall, it must first stop rising.  There is absolutely no evidence this is happening.  In fact, the problem gets worse nearly every week.  Keeping an eye on these numbers is an excellent way to immunize yourself against rosy-scenario forecasters.