Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

May 6, 2009

Thursday’s Unemployment Claims Report

Thursday, the Labor Department will report initial unemployment insurance claims for the week ending May 2. This hard data on labor market conditions is the most current official indicator of the state of the economy.

In recent weeks, jobless claims have eased off record levels, but these still linger alarming high. For the week ending April 25, jobless claims stood at 631,000, and for a healthy economy this figure should be well below 400,000.

Economists expect claims to remain steady at about 630,000 for the week ending May 2. I expect those to be a bit less and to cycle down further in the weeks ahead. However, they will remain at unacceptably high levels, and the unemployment rate will continue to rise.

Released Wednesday, the Challenger survey of layoff plans for businesses and governments indicate improvement in April, as did the ADP advance estimate of private sector employment losses. However, the Challenger survey is of a more limited sample than Labor Department jobless claims, and the ADP survey is an erratic indicator of the official Labor Department jobs numbers due out Friday.

Economists are expecting another tough month for April—about 630,000 jobs lost, down from 663,000 in March. My forecast is the same.

First quarter GDP data indicated a lift in consumer spending but that largely reflected gains in January. Consumers spending and retail sales for February and March, as reported by the Commerce Department, were not as encouraging, but some analysts point to inconsistencies with industry data. They expect the Commerce Department to revise upward its March estimates.

If retail sales and consumer spending are indeed strengthening, April retail jobs figures should show a gain and point to recovery. Retail trade has shed 697,000 jobs since November 2007, and lost 51,000 and 48,000 jobs in February and March.

Again look for a jump in retail employment if the recession is ending, but my soundings indicate don’t hold your breathe.

The economy will turn up by the end of the year but many dangers lurk beneath the surface.

President Obama may not get his “quick rinse” bankruptcy for Chrysler, as the judge may be inclined to uphold the legal rights of the company’s smaller creditors. Giving away the company to the UAW was a political decision not well grounded in the law.

Residential and commercial foreclosures will accelerate through the summer, further stressing banks. And much of the improvement in credit markets as been due to Federal Reserve largess toward the big banks and hedge funds—true rebuilding of healthy credit markets is a long way off.

What recovery we get will be tepid, and unemployment will continue to rise until it pierces 10 percent.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.