Goldman Explains Why The Job Loss Trend Is A Deterioration Not A Distortion, Asks If Maximum Welfare Now Is 198 Weeks

Tyler Durden's picture

Goldman's Andrew Tilton has nothing good for the factless pumpers of the recoveryless recovery: "The timing of the rise in new claims fits with the surge in extended benefit recipients (although as already noted the auto distortion probably had its largest downward impact on claims in that same week).   This raises the question of whether some of the people who lost benefits due to funding problems reapplied via new claims, when in fact they simply should have gone back on the benefit rolls without the need to file a new claim.  It is difficult to know for sure whether this has happened.  Our Labor Department contact thought this also would be minor.   In our view, the fact that claims have continued to rise in the first two weeks of August, even though total benefit recipients were already back at spring levels by late July, casts further doubt on this re-filing hypothesis as a major factor, as most eligible recipients should have re-filed by now.  Certainly, any further increases in new claims – or simply a persistence of these high levels – would suggest that the labor market has in fact deteriorated further.  In short, we need to see a fairly quick reversal of the recent increase in initial claims to sign onto the view that distortions were principally responsible for this apparent deterioration in US labor market conditions." In other words, those who are trying to misattribute the surge in initial claims, and cast the economy in a rosier light, can only do so by blaming government error and inefficiency in reassigning existing claimants to initial status. This is a scary possibility, as it means that those on the verge of exhuasting their 99 weeks of maximum benefits may have found an unexpected loophole to make the length of the "welfare state" support up to 198 weeks (or double the existing max). While it goes without saying that the economy is double dipping, the fact that those who would at least have been forced to look for a job at the end of 99 weeks of welfare subsistence may have doubled their benefits' duration should raise major red flags. However, that this occurred as a function of governmental incompetence is no reason for surprise whatsoever.

More from Andrew Tilton:

Rising Jobless Claims—More Likely Deterioration than Distortion

  • Initial claims for jobless insurance rose to an even 500,000 in the week of August 14, the highest level since last November.   Data for extended benefits show that the total number of people receiving jobless benefits climbed back above 10 million in late July, though that figure remains below the peak of 10.7 million reached in the first quarter.
  • Two special factors could be contributing to the recent increase in initial claims, but in both cases the effects are apt to be minor at best.  First, temporary Census employment continues to decline, and it is possible that some of these people are filing for benefits.  Second, the recent renewal of funding for extended benefits may have encouraged the jobless to file (or re-file) new claims.  Distortions from a third factor—the absence of normal auto plant shutdowns—should already have run their course.
  • Neither of the potential mitigating factors would explain the persistence of claims at current elevated levels through August, so the upcoming claims data will be particularly important to watch.  Absent a quick reversal of the latest increase, our conclusion is that claims signal that US labor market conditions have deteriorated modestly in recent weeks.

Jobless claims have been a major disappointment in recent weeks, with the number of seasonally adjusted new claims rising from a 2010 low of 427,000 in the week of July 10 to a nine-month high of 500,000 in the week of August 14.  At the same time, the total number of people receiving jobless benefits rose back above 10 million, not far from its all-time high of 10.7 million set earlier in the year.  One concise summary of the disappointment is that US-MAP readings for initial claims have not been positive since at least July 1.

Many market participants question the reliability of the recent increase in initial claims, citing several potential distortions over the past couple of months.  First, a wave of temporary Census hiring in the springtime came to an end in early May, with most of those workers now back on the job market.  Second, Congress allowed funding for extended benefit programs to lapse in early June, with the result that the number of people on such programs plummeted in June and July; the benefit rolls have surged again with the recent renewal of such funding, and some returning recipients may have re-filed initial claims.  Third, many vehicle production plants kept humming through the summer instead of taking downtime for annual retooling, with the result that seasonally adjusted employment in this sector looked better for a brief period in early July. (This probably explains the brief dip to 427,000 claims mentioned above.)

Of these three factors, only the first two are candidates to explain the recent increase in claims, as any seasonal distortions from the different vehicle production schedule should have washed through a few weeks ago.  Taking each in turn:

1. Census hiring.  The federal government hired hundreds of thousands of temporary workers to help with the decennial Census.  The number of such workers on the payroll peaked at 585,000 in early May; by the first week of August (the latest period for which data are available), this figure had dwindled to 73,000.  In other words, over the past three months more than half a million people who worked on the Census either a) found other work, b) dropped out of the labor force, or c) are now officially unemployed.  To the extent these former Census employees wanted another job but could not find one—i.e., fell in group c—they might have filed for jobless benefits.

In theory, then, it’s possible that the wind-down of Census employment could have contributed to the recent increase in jobless claims.  In fact, claims did increase in August of the last two Census years (though in 1990 the increase probably had more to do with the fact that a recession began the previous month).  However, there are two problems with this theory.  First, most states require potential beneficiaries to meet minimum requirements for periods of prior employment and pay levels in order to be eligible for jobless claims; in most instances a Census job alone would not qualify a person for benefits.  While many Census workers undoubtedly have had prior spells of employment, others might not have done so recently enough to be eligible.  Second, the bulk of this year’s Census jobs ended by late June (by which time total temporary Census employment had already fallen to less than 200,000), yet jobless claims that month remained roughly in line with May levels.  So it would be strange for the relatively smaller decline in Census employment in recent weeks to prompt a surge in new claims.  Discussions with a spokesman for the Department of Labor suggest that while an impact from Census workers cannot be ruled out, it is apt to be trivial for these reasons.

2. Renewal of funding for extended benefits.  Congress allowed funding for extended jobless benefits to lapse in early June, with more than 1½ million people falling off the rolls by early July (see the exhibit below).  Over the past few weeks, claims have jumped again after funding was renewed through November.  The trough in the number of benefit recipients occurred in the week of July 10 – the same week as the trough in the number of initial claims.  Since then, the number of total benefit recipients has climbed back to roughly its level in May, just over 10 million as of the end of July; over this same period, the number of new claimants rose from 427,000 to 482,000.  (As a reminder, the jobless claims report released each Thursday covers initial claims data for the prior week, continuing claims data for the week preceding that one, and extended benefits with a yet another week’s lag.)

Exhibit: Total Jobless Claimants Rise Back Above 10 Million As Emergency Benefits are Renewed

The timing of the rise in new claims fits with the surge in extended benefit recipients (although as already noted the auto distortion probably had its largest downward impact on claims in that same week).   This raises the question of whether some of the people who lost benefits due to funding problems reapplied via new claims, when in fact they simply should have gone back on the benefit rolls without the need to file a new claim.  It is difficult to know for sure whether this has happened.  Our Labor Department contact thought this also would be minor.   In our view, the fact that claims have continued to rise in the first two weeks of August, even though total benefit recipients were already back at spring levels by late July, casts further doubt on this re-filing hypothesis as a major factor, as most eligible recipients should have re-filed by now.  Certainly, any further increases in new claims – or simply a persistence of these high levels – would suggest that the labor market has in fact deteriorated further.  In short, we need to see a fairly quick reversal of the recent increase in initial claims to sign onto the view that distortions were principally responsible for this apparent deterioration in US labor market conditions.