Yesterday it was the ADP employment estimate and the Challenger layoff numbers. Today, weekly unemployment claims. I’ll take it from Ian Sheperdson of High Frequency Economics, who had been extremely suspicious of earlier signs of a turn in the data:
Jobless claims fell 34K to 601K, well below the consensus 635K and the lowest reading since the week of Jan 24. A clear turn is now visible in the claims numbers. … This is too big a move just to be noise.
Whether this “heralds the end of the recession,” as another one of my fave forecasters, UniCredit’s Harm Bandholz, put it this morning depends on what kind of recession you think this is, and what you think caused the Great Depression to be so great. All we’re seeing right now—in the employment data and lots of other economic indicators—is a slowing of the pace of economic decline. But in every downturn since the early 1930s, the next step after a marked slowing in the pace of the decline was an end to the decline.
In the early 1930s, on the other hand, there were repeated false starts that only presaged further declines. Why was that? I think it’s because the Federal Reserve allowed deflation to run unchecked, and that this deflationary pressure kept bringing new waves of bank failures, which reduced the money supply (thus bringing more deflation) and caused all sorts of dislocations. This makes me a total Milton Friedmanite. Or, really, an Irving Fisherite.
Why do I believe this story? Because within a few months after Roosevelt took over and stopped the bank failures, the economy started growing again. The recovery was fitful, and unemployment stayed high, thus providing fodder for the arguments of Amity Shlaes on the one side (too-high taxes and too much regulation slowed the economy) and Krugman, DeLong, et. al. on the other (the problem was too little fiscal stimulus). I lean toward the latter camp, but don’t think Shlaes is entirely full of it.
I imagine we’ll have a similarly fitful recovery this time around. But barring more Lehman-style collapses, we will have a recovery, and probably pretty soon.