Recession watch: That job market doesn’t exist yet, neither do consumers
Over the decades, recessions have been preceded by spikes in unemployment claims. We are keeping our eyes on them as the recession watch has begun.
By Wolf Richter for WOLF STREET.
In recent months there have been many reports of layoffs, but most of these layoffs were small, a few hundred people here and a few hundred people there, and there were a few with a thousand people or even two thousand people laid off. .
But we are a long way from the massive layoffs of 15,000 or 20,000 people per company, such as happened during previous recessions.
And most people who were laid off found a new job very quickly. There are still large-scale labor shortages that are in the news because of the problems they cause, such as shortage of teachers, shortage of personnel of all kinds in the health sector, the shortage of pilots, flight attendants and ground staff at airlines that produced massively aggravating grunts and flight cancellations this summer, and so on.
The most immediate measure we have of a deteriorating labor market is unemployment insurance data, which the Labor Department releases weekly. Over the decades, large and long-lasting spikes in initial jobless claims have been associated with recessions and have preceded recessions, and so we watch them closely when recession monitoring begins.
The number of people filing new unemployment insurance claims fell to 243,000 seasonally adjusted, the second straight week of declines, according to the Labor Department. These initial jobless claims were a bit above the all-time lows from earlier this year, but were still within the range of the strong pre-pandemic job market:
Looking back over the decades to the double-dip recession of the early 1980s, we can see how low initial jobless claims today are still compared to periods of recession (zones grey) and in periods before recessions.
Historically, initial claims reached over 350,000 before there was enough weakness in the labor market for a recession.
The number of people who continued to receive unemployment insurance after the initial claim – “insured unemployment” – fell last week from 19,000 to 1.415 million (seasonally adjusted), just slightly above historic lows in May, and still close to all-time lows and much lower than any other time. This shows how strong this labor market has been, from the second half of last year – when “labour shortages” became commonplace – until today:
What this tells us.
So we see that there has been a slight increase in jobless claims, such as layoffs, but they are up from historical lows and are still historically low; and that insured unemployment is still at historically low levels.
What this tells us is that the labor market is still very strong; and that most people who are laid off are able to land a new job quickly, or already have a new job planned before they quit their old job, and either they don’t stay on UI for long because they start work, or ever bothered to file for unemployment insurance because they left the old job for the new one.
This can also be seen in consumer spending: consumers, despite being hammered by this runaway inflation, were able to spend more than this runaway inflation. This morning revised GDP data for the second quarter was released, including its inflation-adjusted measure of consumer spending (personal consumption expenditure), which rose 1.5% at an annualized rate from the previous quarter, an upward revision from the initial report (1% annualized) .
We see the impact of this galloping inflation, and it hammers consumers, and it puts them in a bad mood, but they always spend more (personal consumption expenditure, adjusted for inflation, expressed in 2012 dollars, part of the today’s GDP revision):
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