The Great Recession Unemployment Game
The difference between a recession and a depression is whether you are in it or looking back at it. “Depression” is the D-word no one wants to use for their own time. It is kept at bay by another D-word – “Denial.” If the government believed as it said that the recession ended in June of 2009, why has it continued to spend trillions of dollars to continue to end it? Never in its history has the U.S. spent trillions of dollars to end a recession, much less to end one that is over!
The game of economic denial was particularly apparent in the last few weeks.
Unemployment in the Great Recession
For the last month we’ve heard a lot of crowing in the press about how employment figures are improving and how this is finally a sign that the U.S. economy is rising. My own response to this drivel was a simple,
A slight jobs uptick fed the market bulls, but it means little, as one should expect a temporary rise due to holiday hiring in the retail sector. (Economic News Archive)
Of course jobs went up in November and December. THEY ALWAYS DO! And the improvement was small enough that any economics reporter should have easily recognized it as seasonal hiring. Thus, I indicated the numbers were temporary as they would reverse in January, and that news is now in:
The number of Americans applying for first-time jobless benefits rose on Thursday to 399,000, reversing a recent decline and suggesting the labor market remains brittle. The four-week average of claims also marched higher….
The unemployment rate has fallen sharply in recent months and was 8.5 percent December, but some economists worry the drop has been due in part to discouraged workers dropping out of the labor force. (FOX News)
Of course, unemployment is rising back to what it was in January! And the unemployment figures are likely to rise more in the next few weeks. Not all employers fire all of their seasonal help in the first week of January. They keep some of them on to deal with returns, to restock after the big New Year’s sales, and, in some cases, to start doing end-of-year inventory. So, just as we saw several weeks of steady decrease in unemployment leading into the holidays and during the holidays, we’ll now see a few weeks of unemployment increases, too.
I don’t know how one can claim to be an economist and not have recognized that the slight uptick in the number of hired people in November and December revealed nothing about the economy, and yet some STILL don’t recognize that even in hindsight: (I swear they’re dumber than a sponge and twice as blind. A sponge can, at least, absorb something.)
Watch how the unemployment denial game is played by the pros
You have to watch closely on this one.
Applications for weekly unemployment benefits spiked last week, largely because companies let go of thousands of workers after the holiday season…. Economists said such a jump is typical in early January and downplayed the increase. And weekly unemployment claims have been below 400,000 in nine of the past 10 weeks.
That’s a “clear indication that the pace of layoffs has slowed,” said Steven Wood, chief economist at Insight Economics.
Applications typically soar in the first two weeks of the year. That’s because many companies lay off temporary workers who were brought on to help during the holidays. The department tries to adjust for those patterns. But the task is difficult because the data can be volatile.
“We would not read too much into the rebound in initial jobless claims,” Paul Dales, an economist at Capital Economics, in a note to clients. “There (are) always problems in seasonally adjusting the weekly data around the turn of the year. As it stands at the moment, the trend in claims remains downwards.” (National Public Radio)
Absolutely NO ONE in any article I read over the holidays stated that the drop in unemployment claims was due to seasonal hiring. Instead, all the experts said it was an indicator the economy was improving. Yet, here the experts readily point out that the rise in unemployment is simply due to seasonal layoffs.
It should be evident to any adult mind that, if the rise in unemployment today was strictly seasonal and typical, then the same-size weekly drop in unemployment that preceded it was just the flip side of that typical seasonal activity. So, here is how economic denial works: When unemployment numbers go down, there is rejoicing over the recovery of the economy that these numbers surely presage. When unemployment numbers go back up, the pundits all point out that the rise is meaningless because it is seasonal. They do this in order to try to sustain the blind optimism of a bull market. Almost all of our economists in the news play up the good news and then downplay the bad.
That becomes patently obvious in the quotes above when economists downplay the rise in unemployment but rush immediately back to saying the earlier drop in unemployment means were on a recovering trend. What they’re really saying here is that the numbers that were due entirely to seasonal hiring are a sign of a mending economy, but the numbers that are due to seasonal firing are a sign of nothing because that always happens when you have seasonal hiring. Welcome to the merry-go-round of logic.
If so much spin makes you throw up like it does me, let me help you find steady ground. The obvious truth should be that the current rise in unemployment shows that the previous weeks of falling unemployment are the part that actually meant nothing because the jobs didn’t last. The trend has reversed just as quickly as the holidays ended. How can an economist say we shouldn’t “read too much into the rebound in initial jobless claims” because that is seasonally expected and not recognize that we ALSO, in that case, should never have read much into the preceding drop in jobless claims.
Is the whole economics profession suffering from stem rot in the brain?
Turns out the great seasonal sales figures that were lauded are also in recession
As I expected and should have noted back in December, the large volume of sales reported, which helped buoy the stock market, was as meaningless as the employment increase. There are a couple of ways of looking at sales — one is the shear volume of goods moved. If you see tons of things moving off the shelves and stores packed with customers, that looks great. The other is, of course, the value of the goods sold as a measure of volume.
Even that number can be high while profit is nonexistent. If you move a lot of goods because your sales prices are so low there is little profit, then you can actually have a bad season even though people are plowing through your merchandise. It’s the old, “We’re selling each item at a small loss, but we’re making it up in volume.” That was what happened in 2008 at the beginning of the Great Recession. People thought holiday sales were terrific because stores were packed with buyers, but it turned out many stores actually lost money, in spite of high volume. This year was reported as looking great, but the reality was not much better than the last few years:
Sales at U.S. retailers in December rose less than forecast, restrained by cheaper fuel prices and holiday discounting that helped hold down the value of goods sold. The 0.1 percent gain followed a 0.4 percent advance in November that was more than initially reported…. The figures show spending eased at the end of the fourth quarter, and may raise the odds purchases will cool early this year. “Consumers pulled out all the stops to have a decent holiday season, but we’re seeing the momentum from that dropping off,” said Tim Quinlan, an economist at Wells Fargo Securities LLC. (Bloomberg)
In other words, we can expect sales to tank in January and February because people spent their wad while retailers were enticing them with extraordinary discount sales. Retailers were afraid of another bad year that why they did such things as move Black Friday up to Thanksgiving Day and why Christmas items, which have long gone up the day after Thanksgiving now went up the day BEFORE HALLOWEEN!
Sales are always seasonally poor in January and February anyway, but the great drop off during what are typically a high-sales weeks at the end of December due to close-outs of inventory indicates the fall may be more precipitous than usual.
Real unemployment during the Great Recession
As if all that were not enough in terms of how statistics are abused, few economists or reporters ever work with the real unemployment numbers. The unemployment figures given in all reports about the economy improving, as stated in previous posts here on The Great Recession Blog, only reflect the number of people collecting unemployment checks. At any given time, a large drop in the official unemployment rate may mean nothing more than a large number of people have just expended their benefits or given up their job search and have fallen off the far end of the unemployment roll. With that kind of measurement the government could end all unemployment just like it ended the Great Recession in June of 2009 by declaration. Just terminate all unemployment benefits, and the official numbers will show the problem has been solved!
The real number of unemployed is vastly greater than the number thrown around by pundits now that so many people have been on unemployment so long under the government’s Emergency Unemployment Benefits extension program. During normal times, the number of people falling off the far end is fairly small so this number is ignored, but in the present unusual time there are more who have simply fallen off. This so-called “recession” has lasted so many years the government’s method of gauging unemployment no longer bares any resemblance to reality.