Signs of Life

Even though it may not feel like we are making any economic progress, we are slowly clawing our way back to normal. Weekly jobless claims beat analyst estimates yet again dropping to 364,000 - the lowest reading since April 2008. Moreover, the four-week moving average is now at 380,250 claims per week. The last time we had jobless claims numbers like this was June 2008. While the overall unemployment picture still remains stubbornly high at 8.6%, we have continued to improve, slowly but surely.



Sources:
SeekingAlpha.com
Federal Reserve Bank of St. Louis

Weekly Jobless Claims

This morning brought in good employment information: the number of people who filed for initial jobless benefits came in lower than expected at 381,000, compared to the consensus estimate of 395,000. This number is down 23,000 from last week's measurement of 404,000.

As a result, the four-week moving average was reduced to 393,250. This is the lowest measurement since April.

Source:

Department of Labor

Structural Unemployment

14 million Americans are unemployed and yet one sector can't hire new employees fast enough. Looking at the charts below, it is plain to see that manufacturing job vacancies in the United States aren't being filled to meet demand. In fact, the October 2011 unemployment rate for manufacturing was 7.7% compared to the overall unemployment rate of 9.0% (per the Department of Labor).

Consider this, on average it takes companies about 7 weeks to fill a vacant job. Recently, hiring a new manufacturing employee has taken approximately 12 - 15 weeks.

This data supports the notion that there is structural unemployment in our economy, where American skills and American jobs are mismatched. High unemployment rates aside, think of the lost production / GDP / consumption our economy is missing out on.

Fixing structural unemployment will take time. Troops returning home will have solid military training, which may translate well into the manufacturing workplace, but that alone is not the solution. Americans will either have to outsource a segment of this supply chain or place a larger emphasis on trade skills in our educational system.

One thing is certain: manufacturing is fueling much of our economy's current growth. We need to support the strength of this sector.

This graph illustrates how job openings in the manufacturing sector have outpaced total nonfarm job openings from the depths of the recession.

Sources:
stlouisfed.org
cleveland.com

Q3 GDP Revision

This morning, the revised Q3 GDP (Gross Domestic Product) data was released. After revisiting the numbers, the Commerce Department lowered their initial growth estimate of 2.5 % down to an even 2%.

In economic theory, Okun's law describes the relationship between quarterly changes in GDP growth and quarterly changes in the unemployment rate. Generally speaking, reduction in the unemployment rate trails GDP growth by about 2%. Therefore, with the current economy displaying anemic growth of 2%, the unemployment rate will remain at 9% for the near term.

After digesting this information, the stock markets opened modestly lower.

Source: TaintedAlpha.com


Following a GDP growth reading of 1.3% for the second quarter, growth of 2.5% would have been a large jump.