Jobless claims hit record 6.36 million, and pink slips keep coming
Let's hope it's just a pause in the pink slip decline. Initial jobless claims unexpected rose 32,000 to 637,000 for the week ending May 9, the U.S. Labor Department announced Thursday.
Further, continuing claims surged 202,000 to a record 6.356 million. Economists surveyed by Bloomberg News had expected this week's initial jobless claims to total 601,000. The 4-week moving average increased 5,000 to 624,500.
This week's labor market culprit? The roughly 27,000 laid-off, hourly auto workers from Chrysler, who lost jobs when the company idled certain plants May 1.
Economist: Concentrate on long-term outlook
Despite very weak auto sector conditions, JPMorgan Chase (JPM) Economist Robert Mellman wants investors to look past the weekly data, and concentrate on the long-term outlook for the overall job market.
"We expect declines in employment through the end of the year, though the pace of layoffs is slowing," Mellman told Bloomberg News Thursday. "We're looking for a gradual improvement."
Fewer lay-offs mean that consumer spending declines will likely abate. However, investors should keep in mind that unemployment is a lag indicator: it will likely continue to rise for several months even after the U.S. economy starts to recover, as companies first use existing capacity to ramp-up production, then later add employees as demand strengthens.
Through fiscal and monetary policy, the United States has added a record $12.8 trillion in stimulus/liquidity to the economy and financial system. That stimulus is expected to increase demand, leading to a slower pace of unemployment claims, and, eventually, a decrease in the nation's unemployment rate, currently at 8.9 percent.
Critics of the intervention/stimulus, mainly economic conservatives, say the action was not needed and will harm the economy via increasing taxes and the role of government in the economy. Conversely, backers, mainly economic liberals, say the intervention / stimulus may not be big enough to pull the nation out of its pronounced recession, and another fiscal stimulus package may be needed.
Economic Analysis: An unexpected rise in initial jobless claims, but again, it's only one week. Economists view the 4-week average as a better indicator of unemployment conditions, as it smooths-out anomalies for strikes, holidays, or other idiosyncratic events.
Further, provided initial jobless claims resume their decline in the weeks ahead, that would be the best news for the U.S economy since the recession started. It would not signal net job growth, but jobless claims declines point to a day when aggregate demand starts to rise -- a commercial condition the nation hasn't experienced in more than a year.