U.S. Jobless Insurance Claims Remained Elevated

The job market remains weak.That's the message from the figures covering initial claims for jobless insurance. Last week, they held roughly steady at 481,000 with an upwardly revised reading of 485,000 during the prior week. Expectations had been for 476,000 claims. The latest figures were down slightly from the cycle's high, which was boosted after Hurricane Ike, but they were up by half from the year ago level. The four-week moving average of initial claims fell slightly to 477,000 (43.8% y/y).

The largest increases in initial claims for the week ending October 25 were in Pennsylvania (+5,579), California (+4,617), Illinois (+4,314), Ohio (+3,949), and North Carolina (+3,179), while the largest decreases were in Texas (-5,898), Tennessee (-2,078), Kansas (-1,067), Arkansas (-1,003), and Florida (-661).

Continuing claims for unemployment insurance during the week of October 25 rose a sharp 122,000 after the prior week's 6,000 decline. The four-week average of continuing claims rose to 3,754,000 it is this cycle's high and the highest (just barely) since 1983. Continuing claims provide some indication of workers' ability to find employment and they lag the initial claims figures by one week.

The insured rate of unemployment was stable for the third week at 2.8%, this cycle's high and the highest since mid-2003. The peak rate in that recessionary period was 3.0% reached in late June 2003. The Commerce Department indicated that the highest insured unemployment rates in the week ending October 18 were in Oregon (3.6 percent), the Virgin Islands (3.6), Michigan (3.5), Nevada (3.5), California (3.4), Puerto Rico (3.4), South Carolina (3.3), Arkansas (3.2), New Jersey (3.2), and Pennsylvania (3.2).

Understanding inflation and the implications for monetary policy: a Phillips curve retrospective from the Federal Reserve Bank of New England is available here.

Labor productivity in the nonfarm business sector rose 1.1% last quarter. That gain was down by two-thirds from the 2Q increase and by half from 1Q. Nonetheless, the y/y gain of 2.0% remained nearly the quickest since 2004. The latest increase about matched Consensus expectations for 3Q.

Output growth fell to a negative 1.7% (+0.3% y/y) which was its weakest since the 2001 recession. Productivity, however, still rose as hours worked were reduced by an even greater degree. They declined 2.7% (-1.7% y/y).

Growth in compensation per hour nevertheless accelerated to 4.7% and that raised the y/y growth to 4.3%.

As a result of weaker productivity and quicker compensation, unit labor cost growth jumped to 3.6%. That was off the recent highs near 4.0% but the trend is one of acceleration.

In the factory sector productivity declined at a 1.0% (+1.1% y/y) rate and that was the second consecutive quarterly decline following a 3.4% increase last year. Output declined 2.6% y/y and hours worked were reduced by an even greater 3.7% y/y. Compensation growth quickened to 5.1%, the fastest since 2006. As a result, unit labor cost growth 6.1% last quarter and by 3.9% y/y, the fastest since late-2006.

The Current State of the U.S. Economy and the Fed’s Response (With Reference to Irrational Exuberance and Virgil’s Aeneid) from the Federal Reserve Bank of Dallas is available here.

Multinationals Make the Most of IT from the Federal Reserve Bank of St. Louis is available here.

German officials have officially ended their excursion trip with optimism. During their journey through fantasy land, they did take their turns in showing how wrong they can be. From the start of the US slowing, they thought Europe had decoupled and that the euro could continue to rise with little ill effect on the Zone. When the other e-Zone countries were affected they said Germany was different. When the banking crisis hit the US they said German banks were strong and did not have these sorts of problems. Recently they had believed Germany was going to be so much less affected by the growing recession in Europe as policymakers announced that Germany was better prepared to meet the crisis. And so it may be. And we shall find out because ready or not here it comes.

The pop in orders in August may have errantly encouraged the belief that Germany was wearing some sort of special recession-proof vest. But now Super-Germany has met its Kryptonite. The Sept plunge in orders of -8% is the largest drop since German unification and has swept optimism aside. Germany is now, after all, just another European country with an economy under pressure, not a special case

Moreover a perusal of the trends makes is crystal clear that this downturn has been building for some time. Optimism in retrospect looks a bit like whistling past the graveyard. August’s orders gain was a rogue rise of 3.5% sandwiched in between drops of 1.7% in July and now 8% in September. The sequential growth rates get progressively more negative from -9% over 12 months to -12% over six months to -23% over three months. Similarly the foreign and domestic orders show the same progressions.

Germany is getting pulled down more by weakness from the outside. So, in some sense, it is true that Germany has been faring better. But in good times German export orders boomed beyond the reach of domestic orders as well. Germany is simply a lower growth more stable economy than the world in which it trades. Yet weakness abroad will weigh on Germany just as a global boom will boost it. Because Germany is plugged into that trading system, it shares the good and bad times with the world it exports to. There is nothing unusual about that or about the effect of that on Germany in this cycle.

The German industrial sales figures underline the issues. German sales are showing the same sort of progressive declines. For a while Germany was growing better than its trading partners because it deals a lot in capital goods. One year ago German capital goods growth rates rose 8% Yr/Yr while overall German sales rose by just 5.8%. But in September German capital goods orders are being crushed. They are falling by 5.2% in Sept alone. Their three-month pace of contraction is -14.4% rivaling the 15.5% drop in the usually volatile sales of consumer durable goods.

Germany has been caught in the same web of weakness that all of Europe is in. Today’s industrial orders report combines with the week’s earlier reports from the MFG and Services sector purchasers data from Markit to show that weakness is spreading in Germany as well as across the e-Zone.

Germany is in the soup along with the rest of Europe although it may be submerging at a slightly slower rate. There can be little doubt that Germany, like the rest of Europe is submerging. Down periscope.