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Hiring Measure Projects Higher Jobless Claims

by Dennis Jacobe, Chief Economist

Weekly results have high probability of projecting unemployment claims

PRINCETON, NJ -- Weekly aggregates of Gallup's hiring measure show that U.S. employees' perceptions of the job situation at their companies continued to worsen last week. This suggests better than 7-in-10 odds that Thursday's Labor Department report of first-time jobless benefits claims for the week ending Nov. 15 will exceed the 515,000 reported the previous week.


Anticipating Jobless Claims

Each Thursday, the Labor Department reports new unemployment claims for the prior week, reflecting the number of individuals who filed for unemployment insurance for the first time. The idea is to gauge ongoing conditions in the nation's job market, with an increase in jobless claims indicating deterioration in labor-market conditions, and a decrease suggesting an improving situation. Last Thursday, the Labor Department reported that new claims hit 515,000 (seasonally adjusted) for the week ending Nov. 8. According to Bloomberg, the consensus projection for the week ending Nov. 15 is 505,000.

Gallup's Net New Hiring Activity measure is based on interviews with more than 2,000 nationally representative employees each week. Gallup asks current full-time employees whether their employers are hiring new people and expanding the size of their workforces, not changing the size of their workforces, or letting people go and reducing the size of their workforces. Net new hiring activity is computed by subtracting the "letting go and reducing" percentage from the "hiring and expanding" percentage. The assumption is that employees across the country have a good feel for what's happening in their companies, and that these insider perceptions can yield a meaningful indication of the nation's job situation.

Using weekly results for 2008, Gallup's analysis suggests that its Net New Hiring measure has a better than 7-in-10 probability of correctly projecting the direction of weekly jobless claims. Thus, in sharp contrast to economists' consensus that jobless claims moderated slightly last week, Gallup's Net New Hiring measure suggests unemployment claims probably increased. While a number of variables make it hard to predict the exact number of new unemployment claims the Labor Department will report on Thursday morning, Gallup figures suggest jobless claims will exceed the 515,000 reported last week.

Hiring Declining While Firing Increasing

Most Americans would not be surprised to hear that jobless claims continued to increase last week, if indeed that's what the Labor Department reports. Numerous large corporations have announced new job layoffs in recent days, reflecting both the ongoing financial crisis and the sharp pullback in consumer spending in response to the continuing consumer credit crunch. Gallup's hiring measure confirms these expectations: the percentage of employees reporting that their companies are letting people go increased from 19.6% in October to 23.1% in mid-November. Importantly, the measure also indicates that the percentage of employees reporting that their companies are hiring decreased from 30% in October to 26.1% in mid-November.


Surging Unemployment Claims

While projecting new unemployment claims on a weekly basis is a difficult task, the rapidly deteriorating situation in the job market reflected by Gallup's plunging hiring measure should be of great concern no matter what the government reports. Generally, unemployment measures are a trailing measure of economic activity -- simply confirming the strengthening or weakening of the U.S. economy. However, in the current economic environment, surging jobless claims may be more of a leading economic indicator than they have been in the past.

The sharp drop in hiring activity combined with the surge in firings and layoffs suggest a sharp downward spiral in economic activity. While everyone seems to be talking about the current recession, it is not clear that anyone really has a handle on what a continuing surge in the unemployment rolls may mean for Main Street. Nothing may reflect this lack of recognition concerning the oncoming economic tsunami more than the seeming inability of the lame-duck Congress to act this week on such obvious necessities as extended unemployment insurance, expanded food stamps, and expanded heating assistance.

Survey Methods

Gallup's Net New Hiring Activity measure was initiated in January 2008. It is an effort to assess U.S. job creation or elimination based on the self-reports of more than 2,000 individual employees aggregated each week about hiring and firing activity at their workplaces. For results based on these samples, the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.


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