Unemployment

The number of workers filing new claims for unemployment benefits fell by 5,000 last week to 381,000, a smaller decrease than analysts had predicted. The four-week average of new claims, a less volatile measure, rose to 375,250 from 372,000, indicating that the U.S. labor market remains weak and far away from a recovery. Coming after last month's half percent spike in unemployment to 5.5%, these figures add further gloom to the current picture of the U.S economy and will put pressure on the Fed hold its target funds rate at 2% when it meets next week.

Snapshot asks, to what degree will falling consumer spending be exacerbated by labor market weakness?

Wall Street Journal - Jobless Claims Fall in Latest Week
Bloomberg - U.S. Initial Jobless Claims Fell to 381,000 Last Week
Reuters - Treasuries extend losses after jobless claims
Associated Press - Stocks trade mixed after dip in jobless claims

They won't earn a living breakdancing. Photo credit: Reuters

5.6 million Chinese college graduates will enter the labor force this year (a 12% increase from last year) and many of them will have trouble finding jobs. In a country where many believe the one child policy has a firm grip on demographics, there is a boom of educated, optimistic youngsters who are about to be let down with a slowing economy and rising inflation. Reuters's Lucy Hornby reports:

"The birthrate in the 1950s through early 1970s was very high. The baby boomers born in those years are now adults," said Ha Jiming, chief economist at China International Capital Corp.

"Now it's the second wave, of baby boomers' babies. Their children are now in their twenties and many are in college," said Ha, whose research shows China will have a labor surplus through 2015.

Two years ago, I was in China and remember speaking to students about the job prospects after graduation. The word on the street was that roughly 50 percent of students would go unemployed. According to the Ministry of Education unemployment among college graduates last fall was 73 percent. I know many students who have gone on to get graduate degrees but would have preferred to work.

May payrolls fell 49,000 and the unemployment rate rose to 5.5 percent due to losses in the following cyclically sensitive sectors: construction, manufacturing, retail trade, and temporary help services. Healthcare continued to add jobs. It is the highest unemployment rate since October 2004 and the sharpest rise in unemployment in 22 years.

The most notable fact was the massive increase in household unemployment which rose 861,000 in the month of May, the largest increase in 33 years. This was due to new entrants to the labor force (recent high school and college graduates) as well as workers who lost their jobs.

Snapshot asks, since the Fed is typically very sensitive to unemployment, how will they balance May's unemployment data with inflation risks?