Why low jobless claims may not be a good thing
By Neil Irwin,
What’s most shocking about Thursday morning’s report on new jobless claims is how little about it is shocking.
The job market in the United States is feeling the effects of a slowing global economy, a divisive presidential race and a looming “fiscal cliff” that could lead to steep federal spending cuts and tax increases come January. Against that backdrop, the good news is that employers are not panicking and slashing jobs on any large scale. The bad news is that with millions of Americans unemployed, “not firing people” isn’t enough.
The Labor Department said Thursday that 382,000 people filed new claims for unemployment insurance benefits last week, which was effectively the same as the revised 385,000 claims filed the week before. This is an indicator that has been frozen in place for quite a while.
Take the four-week moving average, which filters out random week-to-week blips in filings: This week it was 377,800. A month earlier, it was 368,800. A month before that, it was 376,000. In mid-May, it was 370,800; in mid-January, it was 380,300. In other words, there is no distinguishable pattern.
This proves out over the past 50 weeks, as well. During that time, the standard deviation of weekly claims for jobless benefits, a statistical measure of how much the number varies, reached its lowest level since July 2007, before even the initial ripples of the financial crisis. Translation: Corporate America is in a steady-as-she-goes mode, showing little inclination to fire people in bursts.
Keeping people in their jobs bodes well for the economy, but there’s a flip side to these benefits-claims numbers, and it shows a troubling trend. The overall state of the job market depends on how much employers hire (good!) relative to how many people they fire (bad!). Companies may not be firing people on a large scale, but they’re not hiring, either.
Employers added 4.2 million workers in July, the most recent month for which data is available. Compare that with July 2007, for example, when 5.1 million people were hired — and that was at a time of full employment, in contrast with today’s 8.1 percent jobless rate.
Indeed, the hiring freeze has been the overwhelming cause of the nation’s job market malaise since the recession technically ended in 2009. July’s rate of hiring — three years into what is technically an economic recovery — was lower than in the worst month of the early 2000s downturn.
So, that’s the downside of current employers’ relatively low and highly stable number of layoffs. Hiring people is inherently risky. A corporate executive might launch a new product or division, hire people to staff it and then have to lay them off if it fails. But if businesses never take that chance, never add those workers to begin with (accounting for the low hiring numbers), they also never have to fire them.
In this job market, there are a few million people in the ranks of the unemployed — 3.27 million of them last week, and that’s just the ones receiving government unemployment benefits — who might happily accept the risk of being laid off in the future if it meant they could get on a company payroll today.