Well, last week that changed as continuing unemployment claims declined by roughly 150,000, halting a streak of 21 straight weekly increases in continuing claims, including 19 that were new records.
After companies made deep job cuts earlier this year, the drop in continuing claims is a welcome change. Companies have slashed more than 6 million jobs since the recession officially began in December 2007. Of course, the statistics don’t reveal whether workers on government rolls are successfully finding new jobs or just dropping off because their benefits have simply run out after the normal allotment of 26 weeks. It could be a combination of both circumstances, but more likely unemployed workers have simply run out of benefits and have dropped off the rolls.
To obtain a better perspective on unemployment during past recessions, below is a chart of initial claims (those filing for unemployment benefits for the first time) along with continuing claims (those who continue to receive weekly benefits) dating back to 1971. (Click on chart for larger image)
Looking at the chart, the red line represents continuing claims while the blue line represents initial weekly claims. Let's take a look back at the last three recessions to gain a better understanding of past recessionary cycles.
The early 1980's recession officially lasted from January 1980 until November 1982. As you can see on the chart the peak in continuing claims as well as initial weekly claims came in November 1982. Both the initial weekly claims and continuing claims dropped significantly over the next two years as the economy experienced a robust recovery. Economic growth was spurred by the Fed lowering interest rates and Congress reducing tax rates.
The early 1990's recession officially lasted from July 1990 until March 1991. Reviewing the chart we can see that the peak in continuing claims (red line) occurred in the first quarter of 1991. Although the recession ended in the beginning of 1991, it wasn't until the second half of 1992 (when continuing claims dropped) that the economy began a robust recovery.
The early 2000's recession lasted from March 2001 until November 2001; again the recession ended as the continuing claims figured reached a peak. Unfortunately, the ensuing recovery was rather anemic and job creation was below past recovery levels. The economy didn't really gain meaningful traction until the end of first quarter of 2003, many months after the recession officially ended. Interestingly, the US stock market reached a low in March of 2003, before beginning a multi-year bull market that ended in 2007, driven by expanding liquidity and excess credit. Again, the economy actually gained momentum after the continuing claims figure began to decline, which also corresponded to a turnaround in the US stock markets.
It's possible our current recession could be close to ending, especially if continuing claims continue to decrease or begin to level off in the coming weeks. Officially the end of the recession won't be recorded and announced for several months after it ends, as it takes time for statistics to be finalized. It will be wonderful to finally declare this recession over and we hope things begin to improve. However, it is likely we could experience a recovery that will be very similar to the most recent recessions in the early 90's and earlier this decade; where continuing claims remain elevated or clustered and economic growth experiences rather anemic trends until continuing claims begin to decline.
It is also possible the US stock markets may take their cue from both initial jobless claims and continuing claims in attempting to forecast future economic growth and the pace of corporate earnings. If the past holds any key to the future these numbers bear watching.
