First-time jobless benefit claims sharply down, gross domestic product growth up, with caveats

Chart from Calculated Risk shows first-time claims since 1971. Click for a larger version. As expected, the surge in first-time unemployment benefit claims in the wake of Hurricane Sandy tapered off for the second week in a row, the Department of Labor announced Thursday. Seasonally adjusted first-time claims fell to 393,000 for the week ending Nov. 24, down from the revised 416,000 claims for the previous week. That compares with 399,000 for the comparable week of 2011.

The four-week running average that smooths volatility in the weekly figure rose to 405,250.

Immediately after the hurricane slammed the Eastern seaboard, first-time claims dropped, no doubt in great part because people's mobility was curtailed and electricity outages made filing difficult. Subsequently, however, the numbers soared. In the week ending Nov. 10, they reached their peak of 451,000, the highest first-time claims had been in two years, except for a one-week surge in April 2011. As predicted, initial claims have fallen sharply since then.

In the hardest hit state, New York, applications fell by 30,603 after having increased by nearly 44,000 the previous week. In Pennsylvania and they dropped by 11,451 after more than a 7,400 increase the previous week.

Given that trajectory, it's likely first-time claims will, next week or the week after, fall back into what has been their range for most of 2012: 360,000 to 380,000.

Meanwhile, the Congressional Budget Office showed the importance of the federal government's "emergency" unemployment benefits in a report released today, Unemployment Insurance in the Wake of the Recent Recession. Those emergency benefits, passed to extend the duration of payments to out-of-work Americans as much as 73 weeks beyond the 26 weeks all states used to provide, are set to expire on Dec. 29, as I've noted several times, most recently here. If renewed for a year, the CBO says, the impact would be to create or save 300,000 jobs and that gross domestic product would be 0.2 percent higher in the last quarter of 2013 than it would otherwise be.

And, in the last bit of major economic news reported so far Thursday, the Bureau of Economic Analysis reported in its second estimate of that real growth in the gross domestic product on an annual basis was substantially higher for the third quarter than reported last month in its first, so-called "advance" assessment: 2.7 percent instead of 2.0 percent. In the second quarter, annualized growth was 1.3 percent.

While that seems like a vast improvement at first glance, several analysts have pointed out there's underlying weakness when the details are examined. Here's Bloomberg's Justin Wolfers:

There's more than one way to measure economic output. The headline estimate of gross domestic product that you read so much about is the result of adding up all spending in the economy. Buried deep in the report is an alternative measure, known as gross domestic income, obtained by adding up all the income earned. In theory, measures of GDP and GDI should be identical, because every dollar spent by someone is a dollar earned by someone else. In practice, the two measures differ, because they are based on different source data. [...]

The latest GDI data tell a sobering story. In the three months through September, GDI grew at an annualized, inflation-adjusted rate of only 1.7 percent, compared with 2.7 percent for GDP. Historically, when we've seen divergences like this, it has been more common for the GDP estimate to be revised toward the GDI estimate. So future revisions are likely to show that GDP growth was a bit weaker than the current optimistic headlines suggest.

Perhaps more strikingly, GDI in the second quarter of 2012 shrank at an annualized, inflation-adjusted rate of 0.7 percent. Together with the disappointing third-quarter number, this suggests that over the past two quarters, real GDI has grown at an annualized rate of only 0.5 percent. By contrast, the headline GDP data have grown at an average rate of 2.0 percent over the same period. We don't know which is right, but there's good reason to fear that the pessimistic data are closer to the truth.

As Wolfers points out, the economic data have been "murky" for some time, moving in fits and starts. The economy is steadily growing, and has been since mid-2009, but the growth has not been enough to create new jobs anywhere close to the monthly 250,000-300,000 level that is required to put millions of unemployed people'counted and uncounted'to work. The majority of new jobs that have been created are of the low-wage type, forcing more than a few out-of-work Americans with extensive skills and decades of experience into positions that pay them significantly less with fewer benefits than they had prior to the beginning of the Great Recession in 2007.

What's most frustrating about the failure to enter into better job-creation territory is that until the acute problems associated the recession are resolved, we can't work on the chronic ones, some with origins more than 30 years ago and some the product of policies put into place by both Republicans and Democrats. Instead, any discussion of the benefits from more stimulus in a time of low interest rates and low inflation is submerged beneath the phony arguments about the fiscal "cliff" and the deficit.