Thursday, April 14, 2016

U.S. Jobless Claims Fall to Match Lowest Level Since 1973

Another problem for Austrian-lites, who think there is only a bust side to the Fed created boom-bust business cycle.

The number of Americans who applied for unemployment benefits last week fell by 13,000 to 253,000, sinking to a level last seen in 1973.

The Federal Reserve is not going to reverse its December rate hike. It is not going to negative rates anytime soon. This is not what a recession looks like.



  1. Bob,

    Looking at that chart... one could also draw the conclusion that a recession could be near. If you look at the last two times when the claims were this low (2000 & 2008) it was immediately followed by a recession and a subsequent spike in claims.

    I would probably fall into your "Austrian-Lite" description. Here's my assessment...If you look back at December 2007, the unemployment rate was also 5.0%. Unemployment claims had fallen to ~300k, the DJIA was trading @ 13,264. Everything was "great," and it was boom times back then too. December 2007 of course was the official start to the "Great Recession." We know what happened next: unemployment spiked to 10%, initial claims spiked to ~650k, and the DJIA was cut in half to ~6500.

    My point is that you typically don't know that you're in a recession until you see it in the rearview mirror. While I agree with you that we're not officially in a recession yet, I don't think it's too far off. As far as this Fed created boom goes, the weakest recovery in history, I would say that we're in extra innings as far as where we're at in the cycle. Correct me if I'm wrong, but your posts seem to believe that we're more in the sixth or seventh inning of the boom. If the Fed were to aggressively start raising interest rates, how would that not trigger the bust and expose all of the malinvestments that were made over the last 6-7 years?

    As a side note, I would attribute the recent rally in the markets the direct result of traders seeing a slowdown in the rate hiking cycle from Fed (expectations of 4 hikes in 2016, now down to expectations of 2, and as the year progresses will probably fall to expectations of 1 or 0 hikes by year's end).

    1. The Fed Funds futures market contradicts your statement regarding expectations of a rate hike. Probability of a rate hike in 2016 has been slightly over 50% for the past few months.

      Also, the labor market is a lagging indicator which means you can't use it to forecast a recession. If you want to forecast, you look at the leading indicators which show the economy is not headed into recession

      So far as what happens if the Fed "aggressively" raises interest rates, an "aggressive" rate will always put the economy into a recession. There is no time when an "aggressive" rate hike will not trigger a recession.

    2. I think that you are right Mak Muk about unemployment being a lagging indicator. Having been in management and various cost cutting positions in the business world, labor isn't the first cost that is cut (especially in large numbers). But from your "leading indicator" at the fed site, "the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims...".

      I have come to agree with Mr Wenzel. After all, what is a boom or a bust? You can't read the above graph and make future predictions like it is some sort of waveform from physics. The above graph just shows that less and less people are applying for unemployment, which means more and more people have jobs or other sources of income. Isn't that what part of being in a boom is? Is our economy as stable or wealthy as it should be? No, but that is due to government policy and not because we are in a bust. Are some indicators signalling a bust in the future? Absolutely, but how is that different than all previous booms?