Yesterday's Initial Claims data shows how mistaken the market was, as the claims figure rose (rather than declined as expected) by 15,000. Fact is, the analysts were rejoicing when the unemployment rate fell to 9.4% from 9.5%, thinking that this was it i.e. a recovery is round the corner, failing to realise that this was more statistical in nature. Fact is, the unemployment rate fell despite 247,000 people losing their job. This happened because there were about 500,000 people who were technically not counted as unemployed, although they did not have a job, simply because they were not looking out for a job for some reason or the other during the 4 weeks preceding the survey.
Fact is, during this recession, the US has lost 6.9 million private non-farm jobs starting from December 2007, when the employment number peaked. Even an annual destruction of 5.8 million jobs (as compared to July 2008) is the highest ever annual decline recorded. In effect, not only has all the private sector job created after the last recession has vanished, the total private sector employment number is currently back to what it was 10 years ago. And, during this ten year period, a little more than 15 million people entered the work force
Things turn even scarier when one looks at long term unemployment numbers, i.e. a person who is unemployed for 27 weeks or more. This number has increased drastically to nearly 5 million with every third (33.8% as per BLS) unemployed person being unemployed for long time. This not only means that jobs are becoming very difficult to get, but it also exposes the other green shoot that many analysts are bandying about. That of improving continuous claims data. In this context, it is important to remember that a person, who is unemployed for 26 continuous months, will cease to get allowance. Hence they fall out of the statistics after completing the period. As per the press release issued by BLS, on an average, every month since March 2009, 400,000 plus people become ineligible for the allowance. Naturally, the statistics show improvement. Add to this the fact that there are nearly 800,000 workers who are considered ‘discouraged’ (i.e. they are not looking for job because they believe no jobs are available for them), and the final trace of euphoria would vanish.
For a more detailed view on the US market, you need to wait for a week when my article gets published in Dalal Street Investment Journal.