Friday, April 10, 2009

+++Watch closely: Initial jobless claims+++

Bob Gordon, one of the leading macroeconomists in the US pointed out his observation on the Wall Street Journal a few weeks ago:

"There's growing evidence supporting the optimists' view, and I am surprised at that," said Robert J. Gordon, an economist at Northwestern University and a member of the National Bureau of Economic Research committee that is the official arbiter of when recessions begin and end. "I was sort of in the pessimists' camp until I started looking at things."

He points to one indicator in particular with a remarkable track record: the number of Americans filing new claims for unemployment benefits. In past recessions, it has hit its peak about four weeks before the economy hit a trough and began to grow again. As of right now, the four-week average of new claims hit its peak of 650,000 in the week ended March 14. Based on the model, "if there's no further rise, we're looking at a trough coming in April or May," he said, which is far earlier than most forecasts currently anticipate.

Jim Hamilton at UCSD verifies Gordon's observation on a graph:

(click to enlarge; courtesy of Hamilton)

The graph above plots 4-week averages of the initial unemployment claims going back to 1967, with vertical lines drawn at the first week of the month in which the NBER eventually declared that a recovery from the recession began. Gordon's relation is indeed pretty striking-- in each of the last six recessions, the recovery began within 8 weeks of the peak in new unemployment claims.