Can Unemployment Dip Back Under 10% Before Year-End?

There is a slew of economic data hitting the tape this week.  Friday’s report from the Labor Department on Unemployment and the change in non-Farm Payrolls will dwarf all economic reports.  The consensus estimate for November is an expected repeat of 10.2% unemployment from both Bloomberg and from Dow Jones.  But the consensus change in non-Farm Payrolls data is currently -125,000 from Dow Jones and -100,000 from Bloomberg.  And last week’s data on weekly jobless claims and the updated employment forecast data from the FOMC minutes begs a legitimate question… Can unemployment get back under 10% by year-end?

Last week’s jobless claims data was the first drop to under 500,000 in the jobless line all year and was the lowest reading in more than one-year.  That is definitely a move in the right direction.  We have also seen a steady decrease in the army of the unemployed which is measured by the continuing claims, which fell last week by 190,000 to 5,423,000.  This is still just ‘less bad” and we have a level of 400,000 per week as a ballpark figure on weekly jobless claims that has to be breached before you get a halt to the rise in unemployment.

Then you have Ben Bernanke and friends who released the minutes last week from the November FOMC meeting held almost a month ago.  Its new forecasts gave a projected average for US unemployment of 9.3% to 9.7%, down from the Fed’s prior range of 9.5% to 9.8%.  And the new range for 2011 unemployment was put at 8.2% to 8.6%, which is down from a prior target of 8.4% to 8.8%.  The FOMC also introduced a target range for 2012 of 6.8% to 7.5%.

The obvious notion here that has proven time after time is that when the FOMC begins ratcheting its predictions up or down, it is after the bond market and stock market have already begun to price newer figures in.

It would be welcome news to see a sub-10% unemployment rate by the end of the year.  We will not of course see the official December unemployment report from the Labor Department until Friday, January 8, 2010.

There is always the notion that the unofficial unemployment rate of those who have fallen out of the benefit time line and those who are either under temporary contract or on temporary employment will of course be far higher.  That was put above 17% a month ago and some can argue that this figure may be closer to or even above 20% if you count workers who would normally be jumping ship for a higher pay rate if it was normal times.

It is probably a bit soon to be looking for that unemployment data to fall under the double-digit level yet.  But this Friday’s non-Farm Payrolls data will set the tone for a time line of when the street gets on board with that official reading getting back under 10%.

Jon C. Ogg
November 30, 2009