Saturday, June 06, 2009

More on Exhaustion Rate

So the folks at Seeking Alpha had the good sense to make my last post regarding the Unemployment Exhaustion Rate (KD's World, Seeking Alpha) an Editor's Pick - thanks guys. I received a number of interesting comments on both my own blog, and on the Seeking Alpha version.

Some people commented that I needed to adjust the data for population growth. I realized that I hadn't properly explained what the "exhaustion rate" data was depicting. The exhaustion rate is this: the number of people receiving final benefits divided by the number of people receiving first time benefits. Thus, since it's already a ratio - not gross numbers of people - I don't think it needs adjustment - it's essentially self standardizing for the most part.

I also want people to realize that I wrote the post on Thursday - it was not related to Friday's BLS employment data. I was writing about what I expect will happen with the "continuing claims" numbers in the future.

Some people requested information on the total dollars paid out or average hourly earnings - I have the data - you can get it easily on the Department of Labor site, but those definitely need to be adjusted over time, and I am not about to get into trying to normalize dollar statistics to adjust for inflation - I think the labor data paints a pretty convincing picture.

Commenter "Hooligan" asked for the gross number of exhausted workers. He suggested I also sum them up to get a cumulative running total, but I don't want to do that because it involves a lot of potentially inaccurate assumptions about exhausted workers staying unemployed - we can't tell how long they remain unemployed. I did, however, graph the gross "number of exhausted workers" data, and the chart looks like this:

Surprisingly, perhaps, for the people who thought I'd made a mistake in the initial post by not adjusting for population growth - these numbers do NOT seem to be trending up as much as the exhaustion ratio numbers are. One may have expected the gross numbers to trend higher as the population grew.

The important thing in all of these charts is the spike we're currently seeing. We're seeing more workers than ever exhausting unemployment benefits, we're seeing a higher percentage of workers exhausting unemployment benefits - as well as an uptrend over time in that ratio, and we're seeing a similar increase and uptrend in the % of unemployed people receiving benefits for longer periods of time.

So what does it all mean? Well, for one, it seems we're hardly well on the road to recovery. I also interpreted the upward trending numbers to be indicative that the United States is becoming more of a welfare state - with more people using unemployment benefits more extensively. We're more dependant than ever on the government to look after us, but the government is in more debt than ever at the same time - this seems like a clear recipe for disaster to me.


full disclosure: net short SPY (via common, and options)

No comments: