Thursday, September 5, 2013

This Is Not 1982!

Click to enlarge.

Good grief. We've fallen out of the trend channel to the downside and yet we're repeatedly told that the future is so bright that we need to wear shades. I guess we can just pretty much assume that we'll never reenter the channel again? Seriously?

As seen in the chart, initial claims are just about as bright right now as they have ever been (perhaps even more so if the trend channel is any indicator). They were similarly bright in 2000 and 2007! They were not bright in 1982 though, and that's what made 1982 such a good year to swing for the fences. Things could only get brighter. In hindsight, the brightness increased enormously over the next 18 years!

For a full year, 0.7% of the covered workers were sent to the unemployment lines each week back in 1982. Each week! Now that was dim! Compounded over 52 weeks, that gave each worker roughly a 30% chance of becoming unemployed. Ouch! Think that could never happen again?

I have a reasonable concern that the trend channel in this chart will ultimately hold, and that's all it would take for me to shy away from risk taking. The channel is also very consistent with my long-term permabear attitude (since 2004). That's especially true if most investors start to believe that this economy can actually tolerate higher interest rates, as is continually repeated by the mainstream financial news.

See, in my line of work you got to keep repeating things over and over again for the truth to sink in... to kind of catapult the propaganda. - George W. Bush, May 24, 2005


Propaganda is a form of communication aimed towards influencing the attitude of the community toward some cause or position by presenting only one side of an argument. Propaganda statements may be partly false and partly true. Propaganda is usually repeated and dispersed over a wide variety of media in order to create the chosen result in audience attitudes.

April 19, 2013
"Way Too Bright" Supernova Eludes Astronomers

But what if the supernova was not actually as bright as it seemed?

"Way too bright" economy eludes economists too! Really bright things can get dimmer. Really dim things can get brighter.

This is neither rocket science nor investment advice.

Source Data:
St. Louis Fed: Custom Chart


Mr Slippery said...

How would that trend channel look if you used only full time employment?

In our new part time economy, if you get laid off from one of your two part time jobs, you were never laid off at all!

Stagflationary Mark said...

Mr Slippery,

And if you have 3 jobs and lose 2 of them, no big deal! Genius!

Ivory tower Ed Lazear just said on Kudlow's show that initial claims are at the "high end of normal" and that the stock market is a great predictor of the future economy!

Unbelievable! Apparently he did not hear about how awesome the stock market was doing in 2000 and how well the economy did in the aftermath or how awesome the stock market was doing in 2007 even as the housing bubble had been popping for more than a year.

Forehead. Desk. Whack. Whack. Whack.

Why did I watch Kudlow? I needed some comedy to lift my spirits. Mission accomplished, lol. Sigh.

Joseph Constable said...

Looking roughly at claims historically, 400,000 is a recession(too cold) and 300,000 is a bubble (too hot), and 350,000 is just right.

Stagflationary Mark said...

Joseph Constable,

I would agree with the spirit of your point, but consider this.

Why would we expect the sweet spot for claims to be 350,000 in the future just because it has been in the past?

It would make more logical sense for the sweet spot to grow over time as the workforce grows. As an extreme example, would 350,000 still be the sweet spot if there were a trillion workers? I would argue no. 350,000 would be considered nothing more than noise in the data.

My argument has not worked well in the past because initial claims as a percent of covered workers has been generally falling since at least1980 (at about the same pace as the workforce has grown). I do not expect it to continue though. The 80s and 90s are over!

Stagflationary Mark said...

Also note how low initial claims got at the end of the 1960s (when there were far fewer workers).

I believe that we'll see higher initial claims in the future (even if the economy was healthy), especially now that the 1980s and 1990s are over.

If we were to see a repeat of the same 0.67% initial claims as a percentage of those covered that we saw in 1982, then initial claims would be a staggering 870,000 right now.

I think we would have gotten there during the housing bust if it not for massive government intervention and can kicking. The can still exists in my opinion though. Scary thought.

mab said...

Awesome Dubya quote on propaganda.

Joseph Constable said...

Your percentage analysis is excellent thank you. Perhaps claims are low because people won't quit their jobs due to lack of opportunities (take this job and shove it). In which case in reverse fashion, high claims would indicate a thriving economy and job market. No telling really. It will be interesting.

Stagflationary Mark said...


Bush provided a cornucopia of awesome quotes. Mission accomplished! ;)

Stagflationary Mark said...

Joseph Constable,

Perhaps claims are low because people won't quit their jobs due to lack of opportunities (take this job and shove it).

Can't get unemployment if you quit. You have to be let go.

Therefore, if people don't quit as often then we could actually expect claims to rise more than they otherwise would, as companies that wished to reduce their number of workers would be forced to make workers leave involuntarily.

Picture manufacturing employees being replaced by automated assembly lines. If it is done slowly, a company could just wait for employees to quit and then not rehire their replacements. If nobody quits, then people will be laid off.

Some companies might even try to entice workers to quit in order to avoid having to do layoffs.

If You Resign, Can You Get Unemployment?

Employers who dramatically change the terms of a job may also be open to unemployment claims by those who resign. Substantial reduction in wages or commission rates are examples of this change. Another example is switching employees from hourly wages to straight commission then holding employees to an unreasonable sales quota to entice them to resign.