Market Impact: 2009 Watch List – Part 3

How will US Unemployment rate pan out?

“…This to be seen in the context that consumer spending makes up about 70% of the U.S. economy, and as the credit crunch has dried up Americans' borrowing ability, they're relying on income more than ever for buying power, ...”

The Context:

“…While there was some cheer when the Labor Department said initial filings for state jobless benefits fell to 492,000 for the week ended Dec. 27, a decline of 94,000 from the 26-year high of 586,000 claims a week earlier as against economists expected jobless claims of 575,000 (according to a consensus survey by Briefing.com).

…It's the first time claims were below 500,000 since the week ended Nov. 1, when the government reported 481,000 initial claims. So far this year, job losses have totaled 1.9 million.

The prior week, which ended Dec. 20, saw the highest number of jobless claims since Nov. 27, 1982, when initial filings hit 612,000.”

The adjustments to this figure:

“…seasonal adjustments have become increasingly complicated, a problem compounded by abnormalities like extended auto plant shutdowns.

"All seasonal patterns are out of whack," … "We have to look at data over several weeks, and in that case you still see pretty large uptick in the overall trend."

Over the past four weeks, new unemployment claims have risen to an average of 552,250 a week, down 5,750 from the previous week's unrevised average of 558,000. The four-week moving average is designed to smooth out some of the week-by-week fluctuations in the statistics and provide a wider view of the job market.

The number of people continuing to collect unemployment benefits increased to 4,506,000 in the week ended Dec. 20, the most recent data available. That was a jump of 140,000 from the previous week's revised level.”

The key point to note is that:

“…periods of economic contraction usually occur one or two quarters before a labor downturn. That lag means "the ugly job state we've seen will likely be even more severe next year,"…

Last month, 60% of U.S. CEOs said they expected to cut workers in the next six months, according to the Business Roundtable.

Current expectation of official unemployment rate is expected to peak in the range of 8 to 9% by early 2010. One has to closely monitor any signs/indicators of the situation worsening or improving before the official figures reflect it.

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