Wednesday, March 5, 2014

February 2014 Employment Report

I kind of expect a positive surprise from the employment report Friday.

Initial unemployment claims are flat, but they are near the cyclical trough level.  There isn't much room left to fall.

Continued claims have stagnated, and in fact kicked up a notch in the past month.  This seems like a bad sign.  It would signal that unemployment durations are increasing again.  I suspect, however, that the end of Emergency Unemployment Insurance (EUI) has led to a renewed competition for jobs from workers with longer unemployment durations, so I think this temporary kick up in regular unemployment insurance could be, ironically, a sign of the supply-side benefits of the end of that program.

I've posted this graph before, showing the unusual improvement in unemployment in North Carolina after they ended EUI in June 2013.

In every month of the 5 months we have data for since the end of the program, the monthly change in North Carolina unemployment was significantly more than one standard deviation below the mean for the 50 states.  Most of this decrease came from employment growth.

Avg. State UE % Change 0.01 -0.10 -0.06 -0.24 -0.20
Standard Deviation of State UE % Change 0.12 0.13 0.14 0.15 0.16
North Carolina UE % Change -0.20 -0.40 -0.30 -0.60 -0.50
North Carolina UE Change, # of SD -1.73 -2.37 -1.67 -2.45 -1.85

Unemployment was at 8.9% in North Carolina in July 2013, so there was a lot more room to drop, but all else being equal, I think we should expect a 0.1-0.2% drop each month for the next several months, from this effect, relative to what we might otherwise expect.

Another interesting recent development has been the recent increase in Commercial & Industrial Loans.  I had noticed a trend where this measure of credit from commercial banks has tended to flatten during QE's and recover between QE's.  I have been watching to see if the same pattern might emerge as we exit QE3.  The expansion has come much more quickly and more strongly than I expected.

In all of 2013, Commercial & Industrial Loans (red line) increased by about $110 billion.  These loans have increased by $35 billion in just the first 3 weeks of February and $50 million since the beginning of the year.  Real estate loans on commercial bank balance sheets have also shot up in the last month (blue line).

Bill McBride at calculatedrisk has a rundown of indicators.  They are oddly bearish this month.  This month's indicators seem especially mixed.

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