subject: Jobless Claims, Unemployment and the Highest-Employing Industries in 2011 [print this page] Jobless Claims, Unemployment and the Highest-Employing Industries in 2011
In April 2010, industry research firm IBISWorld released a special report titled "Jobless Claims and Unemployment What Goes Up Must Come Down." In that piece, we said that a high rate of unemployment is expected to last for quite some time, and volatility in jobless claims data will continue.
Furthermore, when we reviewed the long-term trend of initial jobless claims and the unemployment rate over the past four decades, there was a clear correlation between jobless claims and the unemployment rate. When jobless claims decline, the unemployment rate follows. However, for the most recent recession, this trend is taking a little more time to unfold than past recessions. Jobless claims have clearly begun their decline, but unemployment has not started to fall significantly. The unemployment rate has hovered near 10% for quite some time and has only recently begun to fall. Don't expect this trend to continue for too long. History has shown us that the unemployment rate will follow the jobless claims lead. The December rate dropped sharply to 9.4% from 9.8% in the previous month; then in January, the rate fell by another 0.4 percentage points to 9.0%.
Furthermore, 1.1 million jobs were created in 2010. The 9.4% unemployment rate is a little misleading, since only 103,000 jobs were added(which is far fewer than the 150,000 expected) and the workforce shrunk. Still, IBISWorld expects 2011 to be the beginning of a steady decline in the unemployment rate, averaging 8.9% for the full year. This factor means that the downtrend has begun, and the tough times are "behind us" (8.9% is still high, but it's not growing, it's declining). Furthermore, government policies are expected to shift from eliminating layoffs to creating jobs. This trend will help alleviate unemployment growth and finally get those millions of job searchers back into the work force.
It is very interesting to review how closely jobless claims track the S&P 500 on a weekly basis. As displayed in figure 2, since the beginning of the millennium, there has been a very strong correlation between the S&P 500 and jobless claims, when one is inversed. It is clear that declines occurred during the 2002 and 2008 recessions, and both indicators followed similar trends. If we project that 2011 unemployment will continue a downtrend and jobless claims also trend down, then the S&P 500 is expected to continue its current bull run.
Since May 2009, the unemployment rate has been above 9.0%. In other words, it has been above 9.0% for 21 consecutive months (and counting). Toput this into perspective, during the 1981 to 1982 recession, unemployment was above 9.0% for 19 consecutive months. Clearly, this recession has been more painful in that regard. However, once we begin to see a clear trend that the rate is declining, it will pick up steam (unless Europe goes belly-up and sends us back to square one) as confidence reemerges and business hiring improves.
The average unemployment rate of 8.9% in 2011 will turn into 8.1% in 2012, 6.9% in 2013, 6.3% in 2014, and by 2015, we'll likely be back in the 5.0% band. Yes, that is many years of high unemployment, but returning back to full employment is one of the most important goals and drivers for the US economy. It will help ensure that production levels return to full capacity, help achieve consistent and positive economic growth, dramatically help reduce the government deficit, and improve overall living standards and per capita disposable income. As noted, it will take time to reach full employment, but a downtrend in the unemployment rate is far better than an uptrend.
It is highly likely that 2011 is the year that we will see the unemployment rate finally start to show positive signs. Because of this vitally important economic measure, the economy will...click here to view to FREE full report on Jobless Claims, Unemployment and the Highest-Employing Industries in 2011.
