Another week and another encouraging sign: The Labor Department’s tally of new claims for U.S. unemployment benefits, released this morning, fell by 14,000 last week to a level of 631,000. This is still a high level, of course, but the four-week average of new claims — which smoothes out weekly volatility — also declined, to 637,250.
The four-week average is being very closely watched by economists right now, given this simple series has historically had impressive power for predicting when recessions are coming to an end. As we noted a couple weeks ago, Robert J. Gordon, an economics professor at Northwestern University who sits on the committee tasked with dating recessions, is one who finds enormous value in this series. Going back to the late 1960s, he has found that the four-week average of new claims peaks about a month before the declared end of recessions with remarkable accuracy.
As of right now, the four-week average claims series peaked at a level of 659,500 in the week ended April 4. If that number holds, based on the series’ past performance it would mean the recession ended somewhere between late March and early May — a far more optimistic read on the economy than any consensus forecast (the latest WSJ survey of economists shows on average they expect the recession to end in September). “The end of the tunnel may only be weeks away,” says Mr. Gordon.
Of course, the length and depth of this recession — which began in December 2007 — could mean the series doesn’t have as much predictive power this time around. It also won’t be clear for many months when the recession actually has ended, because even if signals coming from the data improve, theNational Bureau of Economic Research’s dating committee, of which Mr. Gordon is a member, likely won’t declare an “official” end for quite some time. For example, the committee didn’t pinpoint December 2007 as the starting date of the current recession until a full year later.
And meanwhile, the government’s data also contained an increasingly worrisome piece of information: The total number of workers receiving jobless benefits jumped to nearly 6.3 million for the week ended April 18, a far higher figure than has been previously recorded by the Labor Department. With such high levels of workers on jobless rolls, it could keep a lid on any hopes for a recovery, particularly as the unemployment rate, now 8.5%, is expected to hit double digits.
I'll just say that it is the last paragraph that I find myself agreeing with. It is too far early to call the end of the recession - I think we are in for a rough rest of 2009. Also, we should expect some uptick in industrial activity (and thus employment) as inventories have been depleted, but this does not mean demand has recovered.