Lower Initial Jobless Claims Hide Surging Unemployment

By Don Miller
Contributing Writer
Money Morning

Initial claims for unemployment benefits fell by 94,000 last week, the biggest drop in 16 years, the U.S. Labor Department said today (Wednesday).  However, the data was almost certainly skewed by a shortened Christmas week, as continuing total jobless rolls surged to their highest levels since 1982.

“The underlying picture is terrible for the labor market,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. The initial claims figures were “distorted by some sort of breakdown in the seasonal adjustment process, with the holidays,” he told Bloomberg News.

A look at the unadjusted unemployment data paints a clearer picture of the economic slowdown.  The number of initial unadjusted claims increased to 718,468, up 1,892 from the previous week. That total is up by a whopping 200,000 claims or nearly 40% from 2007.

While the seasonally adjusted numbers showed a surprising drop, they continue to support an alarming rise in the number of people who are losing their jobs, signaling a worsening labor market as the economy heads into the second year of a recession.

Initial claims for jobless benefits fell by 94,000 to a seasonally adjusted 492,000 in the week ended Dec. 27 from an unrevised 586,000 the week before.  But the number of continuing claims, drawn by workers on benefit rolls for more than one week, surged by to 4.506 million, the highest level in 26 years.

“Given that these data cover the Christmas holiday and a period of winter storms that may have prevented people from filing, we are not reading much into this decline in jobless claims. At this point, we look for a 500,000 decline in nonfarm payrolls in December and a rise in the unemployment rate to 7.0% from 6.7%,” RDQ Economics told the Wall Street Journal.  

Extended shutdowns by automakers also contributed to the distortions.Auto-parts makers and suppliers are firing more workers as General Motors Corp. (GM). and Chrysler LLC seek government funds to continue operations. Auto industry sales in November were the lowest since 1982.

It’s not hard to guess where the biggest jumps in unemployment claims were either.  The roll of states with the biggest jumps in claims are led by California, Kentucky, Michigan, Missouri, and Indiana – all places suffering from debilitating slumps in home construction and auto manufacturing.

Jobless claims will almost certainly continue to rise, as U.S. automakers expand their traditional holiday shutdowns to clear out inventory. Ford  (F) and General Motors recently shuttered 29 of 35 assembly plants until at least the first week in January, while Chrysler idled all 30 of its plants on Dec. 17 for a full month.

And now at least one large auto-parts maker will follow their lead, and close plants. Southfield, Michigan-based auto parts supplier Federal-Mogul Corp. (FDML), controlled by billionaire Carl Icahn, will cut 4,600 jobs worldwide.  The layoffs come on top of 4,000 jobs cut in September.

“We continue to take actions in response to the ongoing significant downturn in regional markets and global industry outlook,” Chief Executive Officer Jose Marie Alapont said in the statement on Dec 19, according to Bloomberg News.

Through November, U.S. job losses have totaled 1.9 million.  Unemployment rolls are likely to continue to rise next year, as many economists forecast the jobless rate to hit 9.0% by the end of 2009 from 6.7% last month.

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