Nothing surprising in this morning's surprisingly bad unemployment numbers

12/17/2009 10:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

As you read this morning’s bad news on unemployment, keep repeating: “Unemployment is a lagging indicator; Unemployment is a lagging indicator.”

It should keep your blood pressure down , prevent you from climbing out on ledge, and from joining this morning’s knee-jerk selling in the stock market .

Initial claims for unemployment benefits climbed to 480,000 in the week that ended on December 12, the Department of Labor announced today, December 17. That was an increase of 7,000 from the previous week. Economists surveyed by Bloomberg had expected that initial claims would drop to 465,000 for the week.

The news supports yesterday’s statement from the Federal Reserve’s Open Market Committee citing high unemployment as a reason for keeping short-term interest rates near 0% for an “extended period.”

The rise in initial claims isn’t, however, evidence that the economy is sliding back into recession.

The four-week moving average of initial claims, which is a better indicator of the trend since it takes the big week-to-week swings out of the numbers, fell to 467,500 for the week that ended on December 12. That was the lowest level of the moving average since September 2008.

The best way to think about the stubbornly and surprisingly high level of initial claims reported on December 17 is to remember that it’s a lot easier to fire people than it is to rehire them. Especially after an extended and really deep recession.

Right now some companies are still cutting jobs as they struggle with depressed conditions in individual industries that haven’t yet begun to recover or strive to become leaner operations to in order to survive in what promises to be a relentlessly competitive global economy even after any recovery.

Once management has made the often wrenching emotional decision to fire 400 or 4,000 workers, it’s not very hard to get the firing done. You mobilize human resources, reserve a lot of conference rooms, and send out the pink slips

Contrast that with the difficulty of hiring. First, after a recession, a company’s managers are likely to think twice, no make that three times, about hiring. The last thing they want to do is to jump the gun and hire new workers before their business has actually started to turn around. And then, second, filling job slots is a lot harder than emptying them. Companies have to advertise, hire headhunters, screen applicants, and finally interview to make sure they’ve got the right person for the job. Sometimes that new worker when offered the job can’t start right away or turns down the offer. Even when a company is rehiring workers of its own that it laid off, it can take a while to track down individuals, make the offer, get the paperwork done, and the like.

What we’re seeing in the unexpectedly high initial claims numbers is a lag in hiring. I’d expect this number, even on a week to week basis, will start to fall again in 2010 as hiring continues to catch up with an improvement in the economy.

That won’t bring unemployment down quickly. In fact increased hiring is likely to bring more discouraged workers back into the job market. That will keep the official unemployment rate high even as the economy improves.

Just remember to chant  “Unemployment is a lagging indicator.”

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