Fed, Employment, Mistake Or Correct? Munis?

Albert Einstein was, it turns out, apparently not the person who defined insanity as “doing the same thing over and over again and expecting a different result” but it’s a good definition just the same.

The definition certainly applies in economics and financial markets when we apply regression analysis to data on the assumption that nothing has changed. Many fail to look for new or unique information or regime changes but rather remain trapped by old ways.

In a brilliant analysis, Philippa Dunne and Doug Henwood published the following insight in their May 3 TLR (formerly The Liscio Report). We thank Philippa and Doug for permission to share their superb work with our readers. They wrote:

“Analysts enthusiastically make claims about jobless claims in historical context, but it’s important to remember this: jobless claims are around 62% of flows into unemployment, more than 20 points below the 1990–2007 average of 85%.”

That’s a terrific snippet.

So as we thought about the monthly employment report, we wanted to frame it in this context and not reiterate the headlines that painted the news flow after 8:30 AM on Friday morning.

Let’s wade deeper into TLR for details.

“Much has been made of the low level of first-time unemployment claims. They are low, no doubt about it – 0.16% of employment, a hair above March’s record low of 0.15% and well below the previous record of 0.20% set in March 2000. (You can say similar things about continuing claims.) But, as we’ve noted in the past, the record comes with an asterisk. That asterisk is the declining share of the unemployed who are eligible for benefits. When we last visited this terrain, we noted that the insured unemployment rate was close to 70% of the official rate in the early 1970s; it’s less than half that, around 32%, today. Some readers countered that this could be explained by the rising share of the long-term unemployed in the total. True enough; now, those unemployed 27 weeks or longer account for 26% of the total, which would have been worse than a depth-of-recession neighborhood in the 1970s and 1980s. But the long-termers can’t account for this: initial claims are now around 62% of the flows into unemployment, more than 20 points below the 1990–2007 average of 85%, and had never been below 74% before 2013. Looking beneath the surface, we’d say there are some labor shortages, but the job market is not as tight as claims may suggest.”