Jobless Claims Surge: EUC Program is Blamed

A: Sorry for the lack of content lately, I'm just burnt out and trying to take some time off. Anyway, I wanted to just discuss today's data for a moment. First off, GDP came in below expectations but it was the negative revisions to 4Q 2007 that grabbed the headline. This could mean that the recession started at the end of 2007, but we won't get any official declaration until we are either nearing the end of the slowdown or out of it. More importantly, was the surge in jobless claims. There was an anomaly at work here called the Emergency Unemployment Compensation (EUC) program, so I want to just discuss this briefly so we can keep things real.

Now, readers of UD know of my beliefs in flawed government statistics. I mean, between the birth/death adjustment, the use of core instead of headline, and the seasonal component it is very hard to get a grip on what is really going on out there.

But when a headline shows a surge of 44,000 jobless claims to 448,000, we should read the fine print a bit. This time around, the Emergency Unemployment Compensation (EUC) program is being blamed for the surge (below via CTDOL.state.ct.us).

Q: What is the federal Emergency Unemployment Compensation (EUC) Program (also known as the Extended Benefits Program)?
A: EUC is a federally-funded program which provides up to 13 weeks of extended unemployment insurance benefits in all states to unemployed individuals who have already collected all regular state benefits or have expired benefit claims and meet the federal eligibility guidelines.

Q: When does the Emergency Unemployment Compensation program begin and end?
A: The program began July 6, 2008 and expires on March 31, 2009.

According to Reuters:

The number of first-time claims filed in the week ending July 26 rose by 44,000 to 448,000, the highest level since April 2003.

The Labor Department said much of this increase is due to an indirect response to the 2008 Emergency Unemployment Compensation (EUC) program. The federally-backed extension provides additional unemployment benefits for up to 13 weeks for people who have already exhausted their regular unemployment benefits.

Labor said that many people contacted about the program actually qualified for regular unemployment insurance instead of the extension under the EUC program, since they had since worked enough to qualify for a regular claim. As a result, initial weekly claims rose.

'It is expected that claims will be higher than anticipated for several weeks as a result of this effect, but should decrease as the states work through the pool of claimants from the 'reachback' period of EUC,' Labor said.

From my other sources (which will remain anonymous), I get this section of a report regarding the EUC program's affect on jobless claims:

Several states have indicated that they are experiencing increases in initial claims as an indirect result of the EUC program. this is because a number of individuals who had exhausted benefits previously (as early as 2006) and were notified of their potential eligibility for EUC qualified instead for a new regular UI claims.

States were required to notify individuals who had previously exhausted their UI benefits that they might be eligible for EUC. Before an individual can qualify for EUC, the state must verify that s/he is not eligible for regular UI benefits. Some claimants who worked temporarily or part-time following establishment of their previous claim might have earned enough to qualify for a new regular UI claim. in that case, they must be placed into the regular UI program (with a new benefit year) as opposed to EUC. These claims would be correctly reported as new initial claims in the regular program.

This should help explain the surge, and explain why the next few reports are likely to be a bit artificially high as well. However, the number of people continuing to receive unemployment insurance is up 185,000; so that is certainly a weak spot. Continuing claims for the week totaled 3.282M, the highest since DEC of 2003.

All in all, we continue to see a weak jobs market and negative revisions to GDP. No matter how you slice it, we are in a slowdown. Call it what you want, things are just soft. Given the phenomenon of credit deflation, housing pressure, weak jobs market, and pesky commodity prices, the consumer will continue to be pressured. The story continues.