Author's note added Jan. 8 -- Contrary to Gallup's projection, the U.S. Labor Department reported Thursday that initial jobless claims actually fell 24,000 to 467,000 last week. It appears this may be related to seasonal adjustments and reduced hiring during the holidays followed by reduced post-holiday layoffs. As a result, Gallup sees the recent decline in claims reported by the government as a short-term phenomenon, not an indication of an underlying trend. Further, it should be noted that Gallup measures self-reports of what people see in their companies, which in some ways may be a more of an accurate indication of what is happening in the jobs market than actual claims, in that some people may not have had the practical opportunity to file unemployment claims. Regardless of the holiday distortions, there seems to be no doubt that the economy was very weak as 2008 came to a close and the reality is that the jobs situation is deteriorating -- as reflected by Gallup's jobs measure -- not improving, as Thursday's jobless claims report might imply.
PRINCETON, NJ -- Gallup's hiring measure shows U.S. employees' perceptions of the job situation at their companies continued to deteriorate as 2008 came to a close. The net difference between hiring and firing turned negative during the last weeks of 2008, suggesting that the Labor Department will report Thursday that seasonally adjusted four-week average jobless claims continued to increase, likely exceeding the 2008 high of 558,000.
Jobs Continuing to Disappear
According to last week's government report, first-time unemployment claims unexpectedly plunged to 492,000 for the week ending Dec. 27. As a result, it is perhaps not surprising that the economists whose estimates form the basis for the consensus forecast have projected that jobless claims will increase to 540,000 when reported Thursday. While a number of variables make it hard to predict the exact number of new unemployment claims the Labor Department will report -- particularly given the holidays and the related seasonal adjustments -- Gallup figures suggest seasonally adjusted jobless claims are likely to exceed this 540,000 consensus estimate for the past week.
In addition, the seasonally adjusted four-week average of Gallup's hiring measure suggests the Labor Department will report that seasonally adjusted four-week average jobless claims continued to increase, likely exceeding the 552,250 reported most recently.
Surging Unemployment Rate
On Monday, President-elect Obama discussed his new stimulus plan with congressional leaders. As part of his effort to explain why such a major fiscal stimulus is required, he noted that the U.S. economy is "very sick" and that Friday's report of the December unemployment rate will be "sobering." Regardless of the actual number the government reports at the end of this week, Gallup's hiring measure suggests job losses are soaring and that the unemployment rate is likely to surge past 7%.
The Fiscal Stimulus Will Take Time to Work
Surging job losses and the inability of the Federal Reserve to do much more than it is already doing to help the economy have created enormous political pressures for the new Congress to pass a major new fiscal stimulus plan immediately, so that Obama can sign it as soon as possible after his inauguration on Jan. 20. In turn, this seems to have many Americans -- on both Wall Street and Main Street -- not only expecting swift congressional action, but also expecting that action to have an immediate impact on the direction of the U.S. economy.
Unfortunately, these rapidly building expectations for the federal government to save the economy in coming weeks are not likely to be realized. In reality, it will be considered lightning speed on Capitol Hill if the new president ends up signing a major new stimulus plan by mid-February. After that, it is likely to take months, not weeks, before Main Street begins to realize any benefits from this new stimulus, no matter how large it is or how it is constructed.
In this regard, it may be wise for the new president and the new Congress to remember the behavioral economics concept of "framing." Talk of crisis and solutions are likely to be essential politically, but it is also essential that Americans realize that all of these efforts will take time to work.
At this point, confidence on the part of consumers, investors, and business is at extremely low levels. The nation's new leadership needs to rebuild that confidence -- not create false expectations that may result in added frustration when those expectations are not realized. Rebuilding confidence by creating realizable expectations is key to any real economic recovery, and it is essential if the government is going to re-energize the private sector to create a sustained economic recovery.
Using weekly results for 2008, Gallup's analysis suggests that its hiring measure has a better than 7-in-10 probability of correctly projecting the direction of weekly jobless claims and a better than 8-in-10 probability of predicting the direction of the four-week average of jobless claims. Gallup's hiring measure is based on aggregated interviews with a nationally representative sample of more than 2,000 U.S. workers each week. Gallup asks current full- and part-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. Gallup's hiring measure 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.
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 point.
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.