Economic Update:  Mixed News on the Unemployment Front

07.24.2009

We have mixed news on the unemployment front this week.  Nationally, continuing claims for unemployment declined again, but initial claims for unemployment increased.  The 4- week average for new claims does continue to point to a downward trend, and this is good.   This week the Department of Labor reported that initial claims for unemployment did decline in Indiana.  This is a highly volatile series, however.   So we can’t make any definitive statements with regard to one week of positive news.

With respect to local unemployment rates, Floyd and Clark continue to achieve unemployment rates lower than Louisville Metro and Indiana.  The latest June data did place local rates slightly above the national average however.   We were seeing a downward trend in local unemployment rates.  Unfortunately, rates have moved upward during the past couple of months.

So what is going on exactly?   We hear talk of green shoots, and the recession approaching an end.  Based on some of the national data, I still think that we are near the end of the official recession date.  But we see unemployment continuing to increase.   Why?   Month-to-month employment losses have begun to decelerate, with the exception of last month’s brutal report.  Assuming that employment losses continue to decelerate, why do we see the unemployment rate creeping up?

The answer here has to do with the duration of unemployment.   The unemployed are experiencing significant challenges in finding new work.  So even though month-to-month job losses continue to decelerate, the unemployed remain unemployed.   The unemployment rate will begin to decline when the economy resumes positive job creation.

When will this happen?   I don’t like to make predictions, but it will take some time before we see positive job creation, nationally speaking.  Business must invest, and consumers must spend.  Consumers are not spending because they are saving and reducing debt levels.  Business will be reluctant to invest until consumers begin spending, and there is greater certainty coming out of Washington.

The bottom line is that policy makers must realize that you can’t just flip a light switch and create a job.  Someone has to take a risk to create that job, and hopefully that risk will result in a greater return.    Profits (and there is no such thing as “excessive” profits) should not be a negative word either.   Through profits and returns, we are able to build stronger communities, invest in capital expenditures and new technologies, and enhance the quality of life for all. 

Source:  STATS Indiana for Clark, Floyd, and Indiana rates

               Bureau of Labor Statistics for Louisville Metro unemployment rates

Source:  Barrons.com

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This information is provided by

Uric Dufrene. 

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in the School of Business at Indiana University Southeast.  He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels.   He previously served as dean of the School of Business.