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Dec 30, 2010 | 15:41 GMT

3 mins read

U.S. Employment Stabilizes

SCOTT OLSON/Getty Images
First-time U.S. unemployment claims are one of the key statistics STRATFOR follows religiously. Unlike most statistics, they represent something close to a hard-and-fast figure — X people applied for unemployment assistance in the previous week — rather than an estimate. It is dependent not on surveys but on how much money state governments have to pay out to claimants. When one has to pay, one's numbers become devilishly accurate. This means the statistic is largely immune to any political manipulation or misinterpretation. In contrast, statistics such as the government's headline unemployment or job creation figures are based on dated surveys, which then wrestle a complex matrix of data into a single — oversimplified — number. First-time unemployment claims therefore are our preferred method for monitoring the U.S. labor market overall, as the service-oriented nature of the U.S. economy prevents the government from generating useful data as regards actual job creation. Unemployment claims were updated Dec. 30, and the new information tells us three things. First, unemployment claims are a current indicator that informs us of the status of the labor market right now. In this case, claims have dipped to 388,000 in the week ending Dec. 24 from 422,000 the week before. The magic number here is 400,000 — that is the point that separates a strengthening labor market from a weakening one. Past performance indicates that anything above 400,000 means the economy is destroying jobs faster than it is creating them. Conversely, anything below 400,000 indicates an overall improvement in the jobs picture. Second, unemployment claims are a lagging indicator that tells us the general mindset of the business world. When businesses accelerate layoffs, it is because they are in a situation where their profitability is threatened. For most companies, staff represents a high sunk cost in terms of training; letting go of staff is typically the last — most desperate — thing they do to return to profitability. Lower unemployment claims, therefore, indicate that businesses have become relatively comfortable with the balance between staff costs and profitability. Third, unemployment claims are a leading indicator that informs us of what consumer spending will look like in three to six months. Stronger job creation means increased private income, which in turn means increased private consumption. Roughly 70 percent of U.S. gross domestic product is composed of private consumption, so lower first-time claims tend to lead to a virtuous circle of higher employment, higher income, higher consumption, higher manufacturing orders, and back to higher employment to fill those orders. Of course, this is simply one week's statistic. For improvement to occur, this statistic will need to hold — or ideally continue dropping — for several months yet. But the fact remains that 400,000 tends to be the inflection point between recessionary and/or tepid economic performance and fast economic growth. For the first time since the recession began in September 2008, the United States has edged back into that zone.

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