Thursday, October 1, 2015

Jobless Claims Average Hasn’t Been This Low Since Richard Nixon

I repeat, the Fed creates a boom-bust cycle and we are in the boom phase.

The idea that the Fed has "run out of bullets" makes no sense from an Austrian School business cycle theory perspective. The idea that the Fed has to keep the Fed funds rate at a target range of 0.0% to 0.25% forever is absurd.

Here is Jeffry Bartash discussing one of the indicators that reflects the current boom status of the economy:
The last time the number of Americans applying for unemployment benefits was averaging this low, Richard Nixon was president.

Initial jobless claims in the period running from Sept 19 to Sept. 26 rose by 10,000 to a seasonally adjusted 277,000, the Labor Department said Thursday.

Although that’s the highest of new claims in a month, the weekly average in 2015 is now the lowest since the early 1970s. The level of new claims sank below 300,000 in early March and has remained there for 30 straight weeks, a feat last accomplished in 1973, when the nation’s working population was 40% smaller.

The average of initial claims over the past month fell by 1,000 to 270,750, also the lowest level since 1973, the government said. The four-week average smooths out sharp fluctuations in the more volatile weekly report and is seen as a more accurate predictor of labor-market trends.

The small number of people losing their jobs each week reflects steady improvement in the U.S. labor market over the past few years that has driven the unemployment rate down to 5.1%.

This is not to say that things won't end badly. I expect a surprise bout of accelerating price inflation, for one, but the view that holds there are no boom phases just doesn't fit the facts.



  1. Or alternatively after all these years everyone who could be let go has been let go driving down initial claims and everyone who couldn't find a job has fallen off the unemployment rolls plus lots of part time low paying work being added instead of 'breadwinner' jobs. That would fit this data plus other data such as median income sagging to 1989 levels. The boom phase is still almost entirely within those close to fed money spigot.

  2. I guess I'm having a hard time understanding what is keeping the whole thing afloat. It's sort of like that "perpetual motion machine" we analyzed in high school science class. We "know" it can't possibly really work, but there it is anyway, chugging away with no end in sight. Are the Keynesians right after all? Unlimited debt, unlimited money printing, and unlimited government spending is the path of prosperity for everyone?

  3. "but the view that holds there are no boom phases just doesn't fit the facts."

    If there was a boom underway, why are credit spreads (high grade liquid bonds versus junk, emerging market debt etc) widening dramatically? The fed may control overnight bank rates, but it cannot manipulate credit spreads. They are dominated by the market.

    If Robinson Crusoe were living in a boom and had a choice between buying investment grade debt yielding 3% and buying riskier debt that yields 6%? Crusoe would buy the 6% debt all day long.

    If Crusoe were living during a contraction, he would be concerned with the "return of" capital and not the "return on" capital and would opt for lower yield, shorter maturity and safety. And that is exactly what is happening with market prices.

    Look at the market prices of any combination of credit spreads- Less risk versus and higher risk, low yield versus higher yield, Gold versus Silver. Utilitiy shares priced in Gold bullion. Short term bonds and debt instruments, and cash- yeah the evil dollar, they are all crushing risk assets this year. Its not even close.

    The world is in contraction. And since the US is not a hermetically sealed economy, it will follow the world economy like night follows day.

    Perhaps the stampede into safe, liquid assets reverses soon. The market will discount of course.
    But at the moment just because a few isolated markets such as real estate in the American glamor cities are still levitating doesn't mean there isn't a global contraction underway.

    Risk has been, and is currently being sold. Liquidity and safety continue to be in a bull market.

  4. When all unemployed and under-employed are accounted for there has been no drop in unemployment since 2007 and the rate has been over 20% since 2009. Even during the Great Depression the unemployment rate exceeded 20% for only four years.

    Unemployment rates are (almost) always stated using U3. U6, the next most often used rate, is consistently about 5 percentage points higher than U3. According to Shadow Stats when including long term discouraged workers about another 4 percentage points is added to U6. This was the method used prior to 1994.

    Since 2010 U3 has fallen about 5 percentage points to 5.1% and U6 about 7 percentage points to 10.3%. When including long term discouraged workers the unemployment rate has remained about 23% since 2010.

    The “number of Americans applying for unemployment benefits” may be at levels not seen since the 1970’s, but the real employment situation seems to be more like the 1930’s.

    1. For argument's sake, let's assume that everything you have stated is accurate, what does that have to do with the business cycle?

      Do you think it is just a bust "cycle"?

    2. Here are links to the stats I used:

    3. The unemployment rate is not 23%. Your number for "long term discouraged workers" is obviously wrong. The labor department reports that there are 91.7 million not in the labor force which includes 85.3 million who do not want a job.

      If you add the 6.3 million who want a job to the labor force, you get an unemployment rate of 8.8%.

      149.036 million employed /(157.065 million + 6.3 million) labor force = .918

    4. Mak Muk,

      You may be correct. The 23% I referred to is from Shadow Stats. I'm do not know exactly how Mr. Williams comes up with his unemployment rate but this is what is stated on the link I previously supplied:

      "The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers."

      I have not checked the accuracy of Shadow Stats. That is a project for someone who does not have more than a full time job and fits in some recreation and relaxation between the inevitable domestic chores. One reason I reference Shadow Stats is that some that I have respect for (such as Ron Paul) have referenced Shadow Stats unemployment rates in the past.

      I think the quote is, "there are statistics and damn statistics."

  5. My intensions were not to comment on the business cycle but unemployment. Mr. Bartash compares current employment figures to those of the 1970’s. Reading only what was printed in EPJ of Bartash’s article, in my opinion he is not telling the complete story. Sometimes half truths are worse than whole lies.

    To answer your questions, I would say that if my comments are accurate we are experiencing the boom part of the cycle with employment trends that we probably have never seen before.

    1. So what do you think is causing the high "discouraged" workers number? Do you think the laws of markets clearing has been reversed for them?

    2. If the laws of markets clearing have been reversed for workers it is mostly if not all due to government. All the requirements and the laws and those that enforce them being skewed in favor of the employee make it so employers try to keep their employee count to a minimum. Workers compensation claims are an example. Pile on ever increasing minimum wages and the welfare state.

      Most people do not want to work. Some are better off in the short run being un or under employed due to government programs. There are those that don't think past the immediate present that act on the fact that along the way up the ladder they are better off receiving government handouts than they are working for a living. So they don't want higher level jobs. If they thought past their noses they may see that eventually they will be better off as they get further up the ladder. Because they don't there are generations of these people. Those that have grown up learning from the adults around them how to work the welfare system.

      None of this is new but these phenomena have matured and maybe they are catching up with us.

      It is also likely that more people are making a living outside the governed system: being payed under the table or dealing in black markets.

      It is likely that the laws of markets clearing are intact for the employment markets. Some of the un and under employed are just not participating in the market in a traditional manner.

  6. If the fed were to print a bunch of money and pay half the country to dig wholes and the other half to fill them up, would we call that a boom? Is any of the arbitrary activity spurred on by the fed actually meeting genuine market demands? Would it be a boom if we all sat down and furiously passed monoply money back a forth? We are experiencing the illusion of a boom. The feedback mechanisms that tell entrepreneurs to change their behavior have been short-circuited by the fed.

    1. So are you equating when the tallest buildings are built to burying money in a hole and that there is no boom-bust cycle?

    2. You're forgetting about all the useful things that could have been done with the manpower and resources that went into building a new big building. Reread Bastiat's Seen and Unseen essay.

      Was the building of the pyramids a boom? Does the Eiffel tower actually do anything?

      Building a new sky scraper that's completed just in time to be half empty may be a boom in activity, but it is not a boom in meeting the actual demands of actual consumers. A big empty building is a liability, not an asset. Buildings require some maintenance whether they have tenants or not.

      Artificial credit expansion doesn't just increase the amount of activity, it changes the type of activity. The reason there is a bust is that entrepreneurs THINK they are starting projects that will meet actual consumer demands, but they are wrong. They are being tricked. The swarm of new money distorts market signals and causes people to do all sorts of silly stuff they wouldn't have done otherwise. Diverting resources to these arbitrary projects necessarily diverts them from actual useful economic activity.

      The FED is not giving us caffeine, it is giving us PCP. We're not just doing MORE FASTER, we're doing CRAZY HARMFUL THINGS MORE FASTER without even realizing it.