More Jobless Claims Confusion

This morning's diminished jobless claims report was celebrated by various CNBC staffers and guests. Later this afternoon, a guest host, Vince Farrell, closed the midday program by carefully lecturing viewers that this news portended a strengthening economy, and all would now be well.

Talking your book, Vince?

Here's another view of the data, with details on Rick Santelli's favorite, "emergency benefits." It's Mark Gongloff's Wall Street Journal piece in this morning's edition, entitled "5.6 Million Reasons to Doubt Jobless Rate."

"The way jobless claims have been receding should signal that U.S. unemployment has finally peaked. That probably isn't the case this time.

The Labor Department releases data on new claims for unemployment benefits on Thursday. Economists estimate claims rose to 455,000 in the Christmas week from 452,000 the prior week.

Holidays make it tricky to seasonally adjust claims. Many economists instead focus on the four-week moving average, which irons out weekly fluctuations.

Fortunately, that average has fallen steadily, from a high in April of 658,750 to 465,250, a 29% drop.

Since the Labor Department started tracking weekly jobless claims in 1967, such declines have signaled an unemployment peak. In fact, by the time this average has fallen by 29%, unemployment already has topped out, typically about six months earlier.

History suggests October's 10.2% unemployment rate was the worst of it, which would do wonders for the sustainability of the economic recovery. It also would mean the Federal Reserve raises rates sooner than investors expect.

So why do most economists still think unemployment has further to rise? Part of the blame goes to the unusually stubborn nature of joblessness in this recession.

The number of workers drawing regular benefits has fallen, from a record 6.9 million in June to just over five million. But instead of finding jobs, most of those people have exhausted regular benefits and joined the rolls of people drawing extended and emergency benefits.

That number has swelled from 2.8 million in late June, when regular continuing claims peaked, to 4.7 million in early December. That extra 1.9 million matches the number of people no longer drawing regular benefits.

Those people already are counted in unemployment. Another 5.6 million aren't: That is the number of people who have given up looking for work and no longer drawing benefits and thus aren't counted in the labor force or in unemployment, which is the jobless percentage of the labor force.

When they start looking again, as they typically do in recoveries, they will rejoin the labor force, competing with the roughly 9.9 million people drawing benefits. That alone will raise the unemployment rate again."

Pretty scary, isn't it? It harks back to my post on this nuance last October.

The 4.7 million additional workers who burned through conventional jobless benefits, and are now drawing "emergency benefits," is what Rick Santelli of CNBC has been noting with alarm recently. This has become a sort of hidden tax in the form of silently extended jobless benefits which you and I fund, with, of course, printed or borrowed, not value-created money.

Santelli's, and Gongloff's points are, this aging of unemployed on extra-long benefits adds some worrisome detail to the otherwise positive-sounding news that overall new claims are down.

Look, nobody in their right mind has ever said 2009 would be a year of extreme US economic decline. After the recession which officially began in December of 2007, eventually, the rate of decline would ease. We may even be at a point of cessation of growing unemployment.

But a healthy economy involves actually adding workers. Despite Vince Farrell's assertions, that's not what today's report indicated. Farrell grossly misinterpreted the data.

Then we come to Gongloff's last point, and mine in the older post. Thanks to carefully-defined terms, the government can avoid including 5.6 million formerly-employed Americans who are no longer "looking for work," and, therefore, able to be uncounted as unemployed.

Another statistical sleight-of-hand which makes things look much better than they really are.

We may have neared a point of maximal unemployment, in terms of newly-idled workers. But it's unlikely, thanks to a number of governmental missteps handling the recent financial crisis and recession, we have seen the last of rising unemployment. And we certainly are very far from actually seeing unemployment decline through new hires.

Gongloff- and Santelli- are correct. We should view these allegedly rosy jobless claim numbers suspiciously.