Are the Effects of "TRUE" Unemployment About to Kick In?

A recent zero-hedge article
rightly questioned the reliability of the reported unemployment figures
by comparing the reported increase in the unemployment benefits paid
with the reported increase in the number of insured unemployed.
According to the figures reported by Department of Labor (DOL), the
total number of insured unemployed in the US has risen by nearly 400%
since September 2007 and has reached nearly 10.5 million as of Dec 19,
2009. However, if we look at the monthly withdrawals on the
unemployment insurance account (according to the Daily Treasury
Statement prepared by the Financial Management Service), the expenditure has risen by nearly 550%.
The difference has been widening since April 2009 (coincidentally,
right about the time the S&P 500 rocketed skywards, and the housing
market made several month to month gains [see If Anybody Bothered to Take a Close Look at the Latest Housing Numbers..."]) and has increased substantially in Dec 2009.

With no reason to believe that the average payouts increased
dramatically (that could have otherwise explained this variation), the
article rightly points out the huge discrepancy that is creeping in the
reported figures. According to Zero-hedge, the insured unemployed are
understated by 32% and estimate the insured unemployed at nearly 14
million. The Bureau of Labor Statistics reported the total number of
unemployed at 15.6 million and the unemployment rate at 10% in Dec
2010. With serious doubts being raised about the reported figures of
the insured unemployed that forms a substantial portion of total
unemployed (nearly 69% in Dec 2010, based on reported figures), the
total unemployment figures reported by the government is most likely severely understated.

The grave unemployment situation not only undermines the economic
health and recovery hopes, but is also acting as a major source of
financial strain on the Fed's books. The Fed has been spending huge
amounts of money in the form of UI (unemployment insurance) benefits.
In 2009, the government paid about $139 billion in UI benefits. Based
on the figures for total unemployed by Bureau of Labor statistics and
total insured unemployed by DOL, the total insured unemployed which are
being supported by the government under the various state and federal
programs have risen to 69.0% of the total unemployed as of Dec 2009
from just 29.0% in Sep 2007. Further it is observed that the Fed has
been taking in huge deficits on its books because of UI programs. The
total UI withdrawals on Fed books in 2009 were $139 billion against
deposits of just $31 billion received from states for unemployment.
While the withdrawals in 2009 have increased by 320% when compared with
withdrawals in 2007, the deposits have declined by 6.6%. The deficit
has increased to nearly $107 billion from nearly no deficit, two years
ago.

The increased pressure on the Fed books can be
largely explained when we look into UI programs that are currently
being administered by the government. There are two major UI programs -
Regular state programs and Emergency Unemployment Compensation (EUC).
While the former has to be funded through tax collection by the state (with any deficit financed by the Fed through loans),
the latter is 100% funded by the Fed. EUC is a Federal, temporary
extension of unemployment compensation for unemployed individuals who
have already collected all regular state benefits for which they were
eligible. The program was started in June 2008 and was due to expire in
December, 2009. The claims under the program have risen at a phenomenal
rate and now accounts for nearly 50% of the total insured unemployed
claims. Thus, the Fed has been financing the extension of UI benefits
of those which are no longer covered under the regular state programs.
As per the last reported figures as of Dec 19, 2009, while the claims
under the regular state programs have come down due to the expiration of claims, the same was more than offset by the massive jump in insured unemployed under the federal EUC program. The
claims under the regular state programs were down 4.3% (y-o-y) while
the claims under EUC were up nearly 200% which led to a nearly 51%
increase in total insured unemployed. Insured unemployed are
not able to get jobs and with claims expiring under the regular state
programs, they are increasingly applying to the Federal's EUC program
for extended benefits.

Looking at the initial job claims under the regular state programs,
while the markets rejoiced the decline in seasonally adjusted figure,
the non-seasonally adjusted figures (which are the actual claims)
continue to inch up. For the week ended Jan 02, 2010, the initial
jobless claims (NSA) increased 88,000 (w-o-w) to reach 645,571. Looking
at the two year trend of the seasonal adjustment does call into
question the validity and accuracy of the adjustments, no?

With the total number of insured unemployed (under the state and
federal programs combined) continuing to increase as well as no respite
coming from the initial jobless claims (looking at the real figures
which are not seasonally adjusted), the unemployment situation is far
from improving. Further, with serious questions being raised about the
validity of the reported number of insured unemployed, the gravity of
the situation is definitely underrated. The Fed is pumping in enormous
sums of money to underpin the problem - an amount that may rival the
TARP. However, with claims expiring under the regular UI state programs
and the temporary aid provided by EUC expected to taper in the coming
months, unemployment is going to increasingly weigh on aggregate demand
and further delay the economic recovery.

I have seen no evidence of the federal emergency benefits being
extended into 2010. What, pray tell, happens when those on this program
run out of rope? Although it may not show up in the initial claims and
average numbers, it will damn well show up in the bottom line of most
companies. Contrary to popular belief, companies really do need people
to spend money in order to make money.

Update:  The
EUC program was set to expire in December 2009 which means that it was
the last date for establishing the claims under this program.
Individuals establishing benefit entitlement as of this date can
collect the remainder of this entitlement through May 31, 2010.
However, with a subsequent Act passed on Dec 19, 2009, the date for
establishing the claims has been extended to Feb 28, 2010 and the last
date for collections to July 31, 2010. The Act also provides for
increasing the weekly UI benefits by $25 in the form of Federal
additional compensation.

And the latest info released today directly from the Department of Labor:

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT

          SEASONALLY ADJUSTED DATA

In the week ending Jan. 9, the advance figure for seasonally adjusted initial claims
was 444,000, an increase of 11,000 from the previous week's revised
figure of 433,000. The 4-week moving average was 440,750, a decrease of
9,000 from the previous week's revised average of 449,750.

The advance seasonally adjusted insured unemployment rate
was 3.5 percent for the week ending Jan. 2, a decrease of 0.1
percentage point from the prior week's unrevised rate of 3.6 percent.

The advance number for seasonally adjusted insured unemployment
during the week ending Jan. 2 was 4,596,000, a decrease of 211,000 from
the preceding week's revised level of 4,807,000. The 4-week moving
average was 4,855,000, a decrease of 151,500 from the preceding week's
revised average of 5,006,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.448 million.  

UNADJUSTED DATA

The advance number of actual initial claims under state programs,
unadjusted, totaled 801,086 in the week ending Jan. 9, an increase of
156,165 from the previous week. There were 956,791 initial claims in
the comparable week in 2009.

The advance unadjusted insured unemployment rate was 4.6 percent during
the week ending Jan. 2, an increase of 0.4 percentage point from the
prior week. The advance unadjusted number for persons claiming UI
benefits in state programs totaled 5,988,940, an increase of 503,924
from the preceding week. A year earlier, the rate was 4.4 percent and
the volume was 5,855,855.

Extended benefits were available in Alabama, Alaska, Arizona,
California, Colorado, Connecticut, Delaware, the District of Columbia,
Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine,
Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Hampshire,
New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon,
Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee,
Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin
during the week ending Dec. 26.

Initial claims for UI benefits by former Federal civilian employees
totaled 1,466 in the week ending Jan. 2, a decrease of 187 from the
prior week. There were 1,454 initial claims by newly discharged
veterans, an increase of 73 from the preceding week.

There were 25,959 former Federal civilian employees claiming UI
benefits for the week ending Dec. 26, an increase of 193 from the
previous week. Newly discharged veterans claiming benefits totaled
36,116, an increase of 1,742 from the prior week.

States reported 5,002,180 persons claiming EUC (Emergency Unemployment
Compensation) benefits for the week ending Dec. 26, a decrease of
141,279 from the prior week. There were 1,666,412 claimants in the
comparable week in 2008. EUC weekly claims include first, second,
third, and fourth tier activity.

The highest insured unemployment rates in the week ending Dec. 26 were
in Alaska (7.4 percent), Oregon (6.6), Idaho (6.2), Wisconsin (6.2),
Michigan (5.9), Montana (5.7), Nevada (5.7), North Carolina (5.6),
Pennsylvania (5.5), and Washington (5.4).

The largest increases in initial claims for the week ending Jan. 2 were
in New York (+22,810), North Carolina (+20,942), Georgia (+11,172),
Wisconsin (+9,938), and Alabama (+5,748), while the largest decreases
were in Illinois (-6,928), Florida (-6,523), Kansas (-3,701), Maryland
(-2,309), and California (-2,284).

---

UNEMPLOYMENT INSURANCE DATA FOR REGULAR STATE PROGRAMS

---

	Advance				Prior1
WEEK ENDING	Jan. 9	Jan. 2	Change	Dec. 26	Year

---

Initial Claims (SA)	444,000	433,000	+11,000	432,000	535,000
Initial Claims (NSA)	801,086	644,921	+156,165	556,517	956,791
4-Wk Moving Average (SA)	440,750	449,750	-9,000	460,250	523,750

	Advance				Prior1
WEEK ENDING	Jan. 2	Dec. 26	Change	Dec. 19	Year

---

Ins. Unemployment (SA)	4,596,000	4,807,000	-211,000	4,979,000	4,487,000
Ins. Unemployment (NSA)	5,988,940	5,485,016	+503,924	5,088,864	5,855,855
4-Wk Moving Average (SA)	4,855,000	5,006,500	-151,500	5,100,500	4,454,250

---

Ins. Unemployment Rate (SA)2	3.5%	3.6%	-0.1	3.8%	3.4%
Ins. Unemployment Rate (NSA)2	4.6%	4.2%	+0.4	3.9%	4.4%

---

INITIAL CLAIMS FILED IN FEDERAL PROGRAMS (UNADJUSTED)

---

				Prior1
WEEK ENDING	Jan. 2	Dec. 26	Change	Year

---

Federal Employees	1,466	1,653	-187	1,434
Newly Discharged Veterans	1,454	1,381	+73	1,543

---

PERSONS CLAIMING UI BENEFITS IN FEDERAL PROGRAMS (UNADJUSTED)

---

				Prior1
WEEK ENDING	Dec. 26	Dec. 19	Change	Year

---

Federal Employees	25,959	25,766	+193	19,710
Newly Discharged Veterans	36,116	34,374	+1,742	25,937
Railroad Retirement Board	10,000	10,000	0	7,000
Extended Benefits	302,272	296,580	+5,692	1,640
EUC 20083	5,002,180	5,143,459	-141,279	1,666,412

---

FOOTNOTES
SA - Seasonally Adjusted Data
NSA - Not Seasonally Adjusted Data
¹ - Prior year is comparable to most recent data.
² - Most recent week used covered employment of 130,128,328 as denominator.
³ - EUC weekly claims include first, second, third, and fourth tier activity.

UNADJUSTED INITIAL CLAIMS FOR WEEK ENDED 01/02/2010 

---

STATES WITH A DECREASE OF MORE THAN 1,000 

---

State	Change		State Supplied Comment
IL	-6,928		Fewer layoffs in the construction, trade, and manufacturing industries.
FL	-6,523		Fewer layoffs in the construction, trade, service, and manufacturing industries, and agriculture.
KS	-3,701		No comment.
MD	-2,309		No comment.
CA	-2,284		Fewer layoffs in the construction and service industries.
NV	-1,113		Decrease due to a shorter workweek.

---

STATES WITH AN INCREASE OF MORE THAN 1,000 

---

State	Change		State Supplied Comment
MA	+1,166		Layoffs in the transportation, warehousing, and manufacturing industries.
AR	+1,779		Layoffs in the trade, service, and manufacturing industries.
IA	+1,871		Layoffs in the manufacturing industry.
MN	+2,142		No comment.
MI	+2,166		No comment.
NJ	+2,477		Layoffs in the transportation, warehousing, trade, service, public administration, and manufacturing industries.
OR	+2,939		No comment.
OH	+3,032		Increase due to holiday shutdowns.
SC	+3,414		Layoffs in the textile industry.
TX	+3,474		Layoffs in the trade, service, transportation, and manufacturing industries.
CT	+3,895		No comment.
TN	+4,609		Layoffs in the service and manufacturing industries.
PA	+5,427		Layoffs in the transportation, primary metals, and industrial machinery industries.
AL	+5,748		Increase due to seasonal shutdowns , as well as layoffs in the apparel and service industries.
WI	+9,938		Layoffs in the construction, trade, service, transportation, warehousing, and manufacturing industries.
GA	+11,172		Layoffs in the construction, trade, service, and manufacturing industries.
NC	+20,942		Layoffs in the construction, transportation equipment, textile, furniture, rubber/plastics, and lumber/wood industries.
NY	+22,810		Layoffs in the construction, service, and transportation industries. Figures are based on a five day processing week.

Comments

[Anonymous]

Unemployment, both in the U.S. and the world as a whole, marches ever higher because the field of economics doesn't account for the relationship between population density and per capita consumption.

Following the beating the field of economics took over the seeming failure of Malthus' theory, economists adamantly refuse to ever again consider the effects of population growth. If they did, they might come to understand that once an optimum population density is breached, further over-crowding begins to erode per capita consumption and, consequently, per capita employment.

And these effects of an excessive population density are actually imported when a nation like the U.S. attempts to trade freely with other nations much more densely populated - nations like China, Japan, Germany, Korea and a host of others. The result is an automatic trade deficit and loss of jobs - tantamount to economic suicide.

Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at http://PeteMurphy.wordpress.com.

Pete Murphy
Author, "Five Short Blasts"

[Heroic Couplet]

Bwahaha lucky Reggie. This Sunday's Parade magazine is re-running Elaine Chao's comments on American workers:

http://www.parade.com/articles/editions/2007/edition_07-01-2007/Intellig...

To read the rest, search Google on "Elaine Chao in Parade magazine."  The second in the search sez "Elaine Chao's racist remarks about American Workers."

[dnarby]

I have been holding that their central mistake was inflating ASSET PRICES.

They should have inflated WAGES. 

Even a one-time $50,000 bonus given to every taxypayer, with the stipulation that it first to be used to pay off debt first, then as they saw fit would have been far preferable than what they did.  After all, the banks would have gotten almost all of that money anyway!

As it is, by giving the money directly to the banks they have sealed the fate of the current economic system.

[Anonymous]

They shouldn't be inflating anything. Human arrogance.

[Anonymous]

You should check out John Williams at shadowstats.com
He does an incredible job of statistical analysis on a historical basis. He also mentions the birth/death model and revisions.

[Anonymous]

If you are unemployed long enough, you get a rise. Seniority counts you know. That is how you have higher amounts paid out.

[pros]

Obama and his team (I voted for Obama) have adopted an "animal spirits" approach combined with a bet on "wealth effect" recovery, all the while siphoning money off to the elite which bought him the election

*release of bad data

*manipulation of debt and equity markets

But the truth is that the economy is still headed south...employment and prices still going south....a depression.

There are huge political problems looming in the USA.

[Mad About Ewe]

2010 will be the year that we can no longer ignore what has been done to us.  There are a lot of people in your shoes pros.  They were enchanted with the O-Team's promises and rhetoric.  We're all realizing how deceptive the system really can be.  I saw through Obama's rhetoric and was not a supporter.  However, I am even shocked at how brazenly dishonest he was.  I'm not trying to bash Obama or you pros.  I'm just trying to point out how thoroughly discredited both political parties are.  Along with that, the banks are now publicly being called out for their... rape of the nation.  The big shoe left to drop is the television news.  My prediction is that people will start turning off their TVs.  The network news is a defacto Ministry of Propaganda that has thoroughly discredited its self by shamelessly cheerleading multiple wars, economic bubbles, unconstitutional ethics, crooked politicians, and greedy, greedy, greedy bankers (I'm looking at you Bernanke).  Here's a tip to the networks: if you want people to keep watching your programs- start telling them the whole truth.   

[dnarby]

I give it to the middle of 2011, but I could be wrong.

[Anonymous]

Reggie thanks for the data, great article

[Master Bates]

139 billion in EUC straining the government's books?
But not the war or anything...

Unfortunately, my UI benefits run out a month after the EUC program ends.  Lucky me.

[Anonymous]

I think I heard in they have to add 800,000 + to the total workforce number due to that birth/death model that has been distorting the numbers lower for most of this year in the next monthly unemployment report but of course they are trying to get some of the 1 million census workers that they will eventually hire added prior to that report also to help the unemployment number not be as high. Funny they need 1 million census hires now compared to 170 thousand last census and I think the population only increased about 10%.

[Invisible Hand]

Reggie, good article. My question is:

Shouldn't the effect of seasonal adjustments over the course of a year cancel out so that the annual SA'ed and NSA'ed number was the same? 

I understand that raw numbers can be deceptive due to factors such as a big increase in work force in June due to high school graduation putting more people looking for work making UE spike due to a large number of new workers in a single month (not spread evenly over the year).

Similarly, a big jump in hiring for Christmas (in November, I suppose) should not bring UE down (as much as the raw numbers would indicate) since this big jump in employment is not a trend.

However, if the annual NSA'ed figures differ from the total SA'ed figures (more than rounding error), the numbers are being gamed.

Reggie, you obviously get this being a bright guy.  If even I get this, how come the geniuses at the BLS don't get this (oh yea, they are getting paid to massage the numbers.

[Chopshop]

thanks for your efforts, Reggie. 

great visual representation of data sets.

[ATG]

John Williams has been reporting 22% real

unemployment for some time using pre-1994

methodologies...

http://www.shadowstats.com/alternate_data/unemployment-charts