Perhaps no nation expends more effort toward measuring its economy than the United States. GDP, consumer prices, industrial production, housing starts, corporate earnings, retail sales, job creation...the financial world receives a continuing stream of information that helps Wall Street set the price for various asset classes, the chief among these being stocks and bonds.
Moreover, most of the key statistics are widely-known, long-standing indicators of economic activity. Others, however, are lesser-known -- but often equally telling -- barometers of the nation's health. One of those involves unemployed workers.
The 13% threshold
The U.S. Labor Department announced that in December 2007, 7.66 million adults were unemployed, a 13.2% increase from December 2006, when 6.70 million adults were out of work.
The significance? In nine previous economic cycles since 1950 with a 13% rise, the annual rise in unemployed adults has signaled a recession every time, The New York Times reported.
Economist Steve Affinito said he doesn't rely on the jobless wave thesis in isolation, but added that it can prove to be a useful economic gauge, in conjunction with other economic data.
"I've always looked at the '13% unemployment rise signal' with a dose of skepticism, simply because no one has been able to empirically demonstrate why 13% is the threshold and not for example 12% or 14%," Affinito said. "But when you analyze the data in conjunction with other indicators for job creation, initial jobless claims, and continuing unemployment claims, and aggregate unemployment, the unemployment rate signal fills out an employment picture from which we can detect trends, if they exist."
U.S. economy: warning signs
With the above as a backdrop, Affinito said the important employment barometers "are flashing warning signs regarding the U.S. economy."
Affinito said the four-week moving average for new jobless claims -- which has increased to 322,200 in 2007 from 313,000 in 2006 -- and job creation are the two data points economists are watching most. U.S. job creation totaled 18,000 in December 2007 -- well below the 70,000 consensus estimate. The two stats, combined with the rise in unemployed adults, show a U.S. economy that's barely growing, if that, he said.
"The statistics as a whole suggest anemic growth right now in Q1, and a few more negative data points would really tip the evidence toward the recession side of the scale," Affinito said.
While not willing yet to declare that the U.S. is in recession now, Affinito nevertheless says it's "prudent and appropriate" for the U.S. to undertake monetary and fiscal policies -- the latter in the form of a $150-$225 billion stimulus package -- to jump-start economic growth.
Congressional leaders and White House officials are expected to continue work this week on a $140-$150 billion fiscal stimulus package which could include a tax cut/rebate for individuals, a business tax credit for investment in new equipment, and selected spending increases.
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