The U.S. will start adding jobs again, sooner than the doom and gloomers think
September 29, 2009
– Comments (44)
I came across an interesting Jim Jubak post on his new blog this morning titled The economy will start adding jobs again–in April. While I am not sure of the exact month that it will happen, as I noted in a recent post the rate of job losses is slowing (see post: The Jobs Market Continues to Improve). While I don't personally envision the roaring, V-shaped recovery that some foresee, at some point likely in the first half of 2010 the terrible string of monthly job losses that we have been experiencing for too long will come to an end.
In the aforementioned post, Jubak cites a Financial times piece that extrapolates the current rate of decrease in new jobless into the future and comes to the conclusion that job growth will begin again in April 2010. Here's how the FT came to this conclusion:
Last week the number of initial jobless claims–the number of people newly unemployed–fell by 4% to 530,000.
The weekly number jumps around so much because of short-term news that it isn’t especially useful as an indicator. Economists prefer to use the four week moving average. (This average of the most recent four weeks changes every week as the oldest week drops out of the calculation and the most recently completed week gets added.)
Right now the four week moving average is giving us good news too. By this measure the number of initial jobless claims is falling at a 6% rate.
There’s always a lot of churn in U.S. economy so the number of initial jobless claims doesn’t have to fall to zero before the economy as a whole starts to add jobs. Unemployment will start to drop when the number of people getting new jobs exceeds the number losing their jobs for the first time.
So when will that be?
Economists figure from past data that the economy starts to add new jobs when the number of people filing new claims falls to about 400,000 a week.
At the 6% rate of decline in the four week moving average, the number of initial claims for unemployment will have declined to that 400,000 level by next April.
So we can expect that the economy will start adding jobs again in April 2010.
Jubak goes on to note that the FT estimate is based on the optimistic assumption that the economy will continue to recover for the next two quarters at the same rate that it has recently.
Furthermore, as optimistic as a return to job creation next spring sounds, that assumption is actually less optimistic than the consensus estimate on the street...which sees unemployment peaking during Q1 2010. Not meeting the street's optimistic forecast could lead to a drop in the market.
Interesting stuff. I won't go as far as to predict a specific month, but I too see an end to job losses and a return to very modest growth some time in 2010...possibly as late as the summer.
Deej
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