Thursday, June 18, 2009

Good News On Weekly Claims?

There are plenty of positive headlines this morning about the decline in the number of people collecting unemployment insurance. Here are the opening paragraphs of a Bloomberg article:

The number of Americans receiving claims for unemployment benefits dropped for the first time since January, adding to evidence the job market is starting to thaw.

The number of people collecting unemployment insurance plunged by 148,000 in the week to June 6, the most since November 2001, to 6.69 million, the Labor Department said today in Washington. Initial claims rose by 3,000 to 608,000 in the week ended June 13, in line with forecasts.

The average number of claims over the last four weeks fell to the lowest level in four months, an indication that the U.S. economy is stabilizing after the worst recession in half a century. Even so, companies are likely to be slow to hire new employees, sending unemployment rates higher, analysts said.

It never ceases to amaze me how articles are spun based upon prevailing psychology. When the market is rising, all news is good news and vice versa.

In fairness, perhaps this is evidence that the labor market is beginning to thaw. However, there is another explanation that isn't being discussed. Unemployment insurance doesn't last indefinitely. Maybe what we're seeing is people falling out of the program because they've exhausted their benefits. This is no less plausible than the bullish spin, yet it has tremendously different implications for the economy.

It's interesting to note that the weekly claims number did not fall. Shouldn't we expect to see this if the labor market is thawing?

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