They're Going to Try to Scare You. Don't Let Them. Part II.

Okay, so that was a big number - 3.3 million initial claims filed for unemployment insurance (Initial Jobless Claims, the topic of my last post) were filed the week ended March 21. If you look at a graph of claims historically, it looks like ... well, it looks like the face of El Capitan, as I predicted in that post.

The reporting the morning of the release was nothing short of comical. Some "business news" network's talking heads couldn't even get the terminology right. One network anchor wondered why the stock market was up so much after such a bad number. (Answer A: The Senate finally got their thumbs out of their backsides and passed the stimulus bill. Answer B: The House moved up the timing of their vote on the package and Speaker Pelosi indicated that it would pass. Answer C: The market had already priced in a really bad claims number. Estimates ranged from 1.5 million to more than 4 million.)

One national cable network anchor started an interview with one of their sister "business news" network's anchors by saying, "Even though this number was expected, it's still a shocker, right?" Yeah, I'm always shocked by news I expected. And the "business news" anchor then proceeded to conflate initial claims with ongoing (continued) claims in saying "this number" is only going to go higher next week because this is just the first time these people filed for benefits.

FYI, that "business news" anchor has a degree in Art History.

One local news channel - I won't name names but their initials are KSHB - seemed to conflate jobless claims with the unemployment rate: "The Labor Department saw an additional 3 million people seeking unemployment claims last week — the highest increase of unemployment claims the Labor Department has recorded since it began measuring seasonal unemployment. It also marked the highest level of insured unemployment since April 2018, when the unemployment rate was at 3.9 percent."

For one thing, unemployment claims are not "seasonal unemployment." And today's number wasn't due to seasonal factors (okay, so the virus is almost certainly seasonal, but I mean like seasonal layoffs in auto manufacturing as they shut down plants to re-tool). It was event-driven. And it isn't "insured unemployment," it's the number of people who filed claims to receive unemployment insurance benefits. Continued claims would be more akin to "insured unemployment." And finally, it's not the same as the unemployment rate.

But wait, it gets better: "According to figures released Thursday morning, 3.2 million people sought unemployment between March 14 and March 21." News flash: nobody seeks unemployment. Well, maybe those about to retire.

Okay, enough about the media dunderheads. To clarify things, let's look at the unemployment rate. And I chose this topic not only because of the dim-witted reporting, but because -

They're going to try to scare you again, this time when the next unemployment rate is released.

By definition, the unemployment rate is the number of unemployed, divided by the Civilian Labor Force. It is based on a survey of U.S. households. It is released on the first Friday of each month by the Bureau of Labor Statistics (with rare exceptions for Good Friday), and it is the unemployment rate as defined above, as of the end of the previous month. So on Friday, April 3, the March unemployment rate will be released. It will be considerably higher than the February rate of 3.5%, which was released on Friday, March 6.

And the media will try to scare you with it. Once again because they do not understand it in context, and they think it's their job to scare you. So a little history is in order.

The February 2020 unemployment rate of 3.5% - the same rate reported in September, November and December 2019 - is the lowest since 1969. So as was the case with initial jobless claims before the March 26 release, the unemployment rate recently has been at historically low levels, the lowest seen in a very, very long time.

More historical context: The record low unemployment rate was 2.5%, recorded in May and June of 1953 (at which point in time the Curmudgeon would not yet be unleashed on the world for more than five years). Thus the February 2020 rate is just a point above the record low. The record high of 10.8% was reached in November and December of 1982. The peak of the Great Recession was 10.0%, reached in October 2009.

And as is the case with Initial Jobless Claims, cyclical peaks in the Unemployment Rate tend to coincide with the ends of recessions - in fact, with the Unemployment Rate, it has been the case in every recession since the end of WWII that it has peaked after the recession officially ended. Usually just after, which again means that when the unemployment rate peaks, the worst is behind us.

Now that we've looked at record highs and lows, let's look at some trend data. But before we do, here's what the media will try to scare you with on Friday, April 3, when the March unemployment rate is released:

It's possible that it will be over 5%. And if not in March, it certainly could be in April.

So the headlines will read:
"Highest unemployment rate since (depends on how high it is; 6% would be 2014)!"
"Biggest one-month jump in the unemployment rate since (again depends on how high it is; 6% would be the biggest one-month jump ever, while 5.8% would be the biggest one-month jump since 1949)!"
And again, depending on how high the number is, "Unemployment rate nearly doubles!!!"

Okay. The average unemployment rate, going back to when the data was first recorded in 1948, was 5.73%. It has been below 5% only about 37% of the time, and of those 318 occurrences, 53 have come in the last 54 months. When Janet Yellen was Fed Chair (a dark time in economic history), her target unemployment rate was 5%. That was considered "good" - in fact, good enough to start raising interest rates to stave off inflation resulting from rising wages.

"Full employment" has long been considered to be 6%. (Technically speaking, "full employment" is one-half of the Fed's dual policy mandate: to promote stable prices, i.e. maintain low inflation, and to promote "full employment", which basically means "get as many people working as you can, but don't worry about the small percentage that might be more or less unemployable." Plus, there is friction in the number in that people in the survey may be in and out of a job at a given point in time, even in a good year.)

The unemployment rate has been above 6% about a third of the time, and we haven't been in recession a third of the time since 1948 - in fact, we've only been in recession about 14% of the months since January of that year. So the unemployment rate has been above 6% through about 20% of the non-recessionary months since just after WWII.

So understand that while an unemployment rate of 5% or 6% isn't as good a situation as we had before this virus hit, it's actually pretty good historically. And even if it goes higher, it's not likely to for long. Unless, again, you defy the scientists - the qualified ones like Drs. Fauci and Birx, not the self-described ones on Facebook - and believe that this thing isn't going to prove to be seasonal, and that this is going to last many months. But if that's the case, you're reading the tin-foil-hat posts on Facebook, not this, so I'm guessing that if you're still with me, you're okay.

Expect a number above 5%, and don't be "shocked" by what you expect. And know that in context, it's not the Great Depression. Far from it. In fact, most of the recessions during which unemployment peaked below 8% have been relatively mild, and short in duration.

Think of it this way: it's like the folks who have only been looking at mortgage rates since the Great Recession, and they think that a mortgage rate above 5% is "high." Historically speaking, it is not. My first mortgage carried a rate of 10.5%. It has only been during this very recent (since 2009) period of extreme and unprecedented accommodation by the Fed that mortgage rates have been below 5%. They've been as high as 18.6% - and people still bought homes. So just as sub-5% mortgage rates are not "normal," sub-5% unemployment is not "normal."

One final note: lest anyone be offended by my comments about the media: I have nothing against people with majors in Art History, Theology, or Interdisciplinary Studies. Heck, I once had an investment sales rep who worked for me who had a History degree.

Okay, bad example. I fired him.

My issue is when those folks join the media and try to apply their economic ignorance and innumeracy to the economy and the markets, and they sensationalize things to try to scare people, because if you're terrified, you're riveted, and they can sell more of their their sponsors' crap.

But look on the bright side: if you're a newly-minted grad with a degree in Etruscan Civilations facing six figures of student loans from an Ivy League college you couldn't afford because going to juco to be a paralegal was beneath you, you may be in luck: there's a promising future ahead of you. In "business journalism."