5.6 Million Reasons to Doubt Jobless Rate

By MARK GONGLOFF The way jobless claims have been receding should signal that U.S. unemployment has finally peaked. That probably isn't the case this time. The Labor Department releases data on new claims for unemployment benefits on Thursday. Economists estimate claims rose to 455,000 in the Christmas week from 452,000 the prior week. Holidays make it tricky to seasonally adjust claims. Many economists instead focus on the four-week moving average, which irons out weekly fluctuations. Fortunately, that average has fallen steadily, from a high in April of 658,750 to 465,250, a 29% drop. Since the Labor Department started tracking weekly jobless claims in 1967, such declines have signaled an unemployment peak. In fact, by the time this average has fallen by 29%, unemployment already has topped out, typically about six months earlier. History suggests October's 10.2% unemployment rate was the worst of it, which would do wonders for the sustainability of the economic recovery. It also would mean the Federal Reserve raises rates sooner than investors expect. So why do most economists still think unemployment has further to rise? Part of the blame goes to the unusually stubborn nature of joblessness in this recession. The number of workers drawing regular benefits has fallen, from a record 6.9 million in June to just over five million. But instead of finding jobs, most of those people have exhausted regular benefits and joined the rolls of people drawing extended and emergency benefits. That number has swelled from 2.8 million in late June, when regular continuing claims peaked, to 4.7 million in early December. That extra 1.9 million matches the number of people no longer drawing regular benefits. Those people already are counted in unemployment. Another 5.6 million aren't: That is the number of people who have given up looking for work and no longer drawing benefits and thus aren't counted in the labor force or in unemployment, which is the jobless percentage of the labor force. When they start looking again, as they typically do in recoveries, they will rejoin the labor force, competing with the roughly 9.9 million people drawing benefits. That alone will raise the unemployment rate again.