The Department of Labor announced today that seasonally adjusted UI claims jumped to 500,000 in the most recent reporting period. The four-week moving average, which smoothes over some of the weekly volatility in the data, jumped by 8,000 to 482,500. This is not good news for workers — or the economy.
Most of the economic data we have, like that on international trade and estimates of the GDP, arrives with a substantial lag and is often revised repeatedly. One of the few real-time and meaningful measures available is the weekly release of initial claims for unemployment insurance, or UI claims.
Individuals who involuntarily separate from their employers — or, to be blunt, get fired or laid off — after a short period file for unemployment insurance benefits. When labor markets are weakening, UI claims rise as more people get laid off. When labor markets are strengthening, UI claims drop as employers make greater efforts to retain their workers. And, of course, labor markets themselves are a pretty good indicator of the state of the overall economy.
What does a UI claims figure of 500,000 mean? As a rule of thumb, the rate of UI claims needs to fall below 425,000 to signal net job creation, so the most obvious answer is that the UI claims data suggest employment is falling and the economy is just about flat-lining in terms of growth.
Taken in isolation, the UI claims might be taken with a grain of salt. But second quarter GDP data also suggest that the underlying trend growth rate in the economy is worrisomely close to zilch. Very little recent economic data contradict this view.
It’s entirely possible the economy is just taking a breather before the recovery resumes with some strength. Many good forecasters expect this.
But it’s unlikely. The U.S. economy is poised to flourish, but it can’t. It’s missing a vital ingredient — confidence. The economy can’t speed forward because families and businesses are losing confidence in the economy and in the ability of Washington to do anything positive about it. Pretty speeches about “turning the corner” and “recovery summer” won’t do it. Threatening tax hikes won’t do it. Washington needs to change its tune, and fast, or the non-recovery summer will be followed by a long, cold winter.
— J. D. Foster is the Norman B. Ture senior fellow in the economics of fiscal policy at the Heritage Foundation.