Not the Whole Story

Not surprisingly, there was plenty of hoopla over today’s larger-than-expected drop in first-time applications for unemployment insurance compensation.

“U.S. Jobless Claims Drop Points to Spending Gains” (Bloomberg)

Americans filed the fewest claims for jobless benefits since 2008, surprising forecasters and signaling that an improving labor market will give the world’s largest economy a boost.

Claims dropped by 13,000 in the week ended Feb. 11 to 348,000, less than the most optimistic estimate of 45 economists surveyed by Bloomberg News. Other reports today showed consumer confidence improved, housing starts climbed and manufacturing in the Philadelphia area accelerated.

Stocks rose on evidence that the U.S. expansion is gaining strength in the face of the European crisis and a slowdown in China. The decline in claims for jobless benefits coincides with a pickup in hiring that pushed the unemployment rate down to a three-year low last month, giving consumers the confidence to increase spending.

Unfortunately, the initial claims data doesn’t tell the whole story. While weekly tallies of first-time applicants for unemployment benefits have drifted back towards the lower end of their historical range, those figures do not include Americans who have been out of work for more than a week. If you take the sum total of initial, continuing, extended, and emergency claims — which runs the gamut of insurance programs for the unemployed – it remains more than 70% above the high end of the range that prevailed during the past two-and-a-half decades.

So, while the number of newly unemployed workers is considerably less than it was, the number of Americans who are jobless and collecting benefits remains far above the levels that have been seen in the past, including during periods when the U.S. has been in recession.

But as usual, Wall Street must know better – right? Otherwise, why else would they keep buying stocks?