Look Beyond the Unemployment Figures
02/04/2010 1:13 pm EST
Take a deep breath, guys.
With all the hyperventilating about today’s (February 4) disappointing initial claims for unemployment numbers, you’d think that everyone has forgotten that unemployment is a lagging indicator.
Unemployment numbers will be one of the last economic indicators to improve. Other economic numbers released today show that the economy is about where it was expected to be at this point in the recovery.
No doubt the initial claims number—the number of previously employed workers filing claims for unemployment for the first time—was disappointing. For the week ended on January 30, initial claims climbed to 480,000 from 472,000 the week before. Wall Street economists had expected that the number would drop to 455,000.
The weekly initial claims numbers are incredibly volatile, which is why economists prefer to follow the four-week moving average for initial claims. Even here, the most recent figures were a move in the wrong direction. The four-week moving average climbed to 469,000. That’s up from 457,000 the previous week and well above the recent low of 441,000 that the moving average set back on January 9.
OK. Certainly not what we were wishing for. But if wishes were horses, beggars would ride. And the rest of the day’s economic numbers say the economic recovery is on track in the United States. (For my take on the overseas turmoil that is most responsible for pushing the market down today, see this recent post.)
For example, factory orders increased 1.0% in December. That’s the same growth as in November. Economists had been expecting just a 0.5% increase.
A revision of the numbers for durable goods orders showed that instead of increasing by just 0.3% as initially reported, orders for durable goods grew by 1%. And growth would have been even stronger if orders for non-defense aircraft (Boeing (NYSE: BA) is the single biggest contributor to the non-defense aircraft number) hadn’t tumbled by 30% for a second consecutive month.
Productivity numbers were the most encouraging sign for anyone watching for a turn in the unemployment trend.
Non-farm productivity jumped by 6.2% in the fourth quarter of 2009 after growing by 7.2% in the third quarter. (The consensus among economists was for a 6.5% increase.)
Although the gross productivity number fell short of expectations, the make-up of the number was encouraging for a turn to job growth. Extremely so.
In the third quarter, much of the growth in productivity came from a decrease in the number of hours worked—workers put in fewer hours to produce more goods, resulting in a big gain in productivity.
In the fourth quarter, productivity growth came from an increase in goods produced (roughly a 7% increase) and in hours worked (1%). The growth in the number of hours worked actually took productivity growth down a bit, but the increase is extremely important for an eventual turn to job creation.
Before employers hire more workers, they increase the number of hours worked by current employees. It’s only when they see that they can’t get more production without hiring more workers that employment starts to rise.
So the productivity numbers contain a small leading indicator for a turn in the lagging unemployment indicator.
Pretty much where the economy should be in this stage of a relatively slow recovery from a very deep recession.
Full disclosure: I don’t own shares of any company mentioned in this post.