Chapter 8: Fall in Jobless Claims Not Strong Enough

http://network.nationalpost.com/np/blogs/tradingdesk/archive/2009/06/04/fall-in-jobless-claims-not-strong-enough.aspx

Summary
Initial jobless claims have dropped in the United States by 4,000 resulting 621,000 reported for the last week of May. The overall unemployment numbers dropped 15,000 to 6.74 million, which is the first time the numbers looked favourable since the start of the year. This circumstance suggests that our economy is improving. According to economist Robert Gordon, “the four-quarter average of jobless claims is a very consistent predictor of economic recovery in past recessions”. These jobless claims provide insight as to whether or not the economy is going to improve or worsen. The jobless claims started to rise when the US economy stalled in 2007. During the middle of that year, the claims were roughly 325,000 workers, but now the numbers have doubled.

Connection
Employment or rather unemployment in this article relates to the unemployment and inflation trade-off as well as the automatic stabilizers, one of which includes employment insurance. When it comes to unemployment, it cannot be simultaneously related with inflation. When unemployment becomes a problem, the government will attempt to increase the level of spending. This increase in spending appears to be good since it will result in a higher demand for workers while lowering the level of unemployment, but at the same time, it increases prices that in return increase inflation. If attempts were made to decrease the rate of inflation, cutting back on spending must be achieved first. This, unfortunately, will result in more unemployment. When graphing the inverse relationship between unemployment and inflation, we can determine that we stand at the high unemployment rate and low inflation area. Since the economy is not doing well, it’s obvious that unemployment numbers are up. In attempt to stimulate more spending, the inflation rate is low as well. Automatic Stabilizers are government programs that are run to react automatically to help adjust the level of aggregate demand when economic conditions change. When workers are out of job, like in the article, the income becomes 0, which results in less spending. Employment insurance exists so that the unemployed citizens can still have some income and be able to spend. This will limit the negative results of unemployment on the economy.

Reflection
When given the figures from the article on unemployment, I cant help but think that this will be bad for our economy. But then I realize that these higher unemployment numbers are actually positive for citizens, because it would means less inflation. This is very good for the average consumer who is still employed. Since they are still getting the same income and prices aren’t increasing rapidly, they will not have to be worried, even in times of recession, like now. Despite the high unemployment numbers, I am not worried because there are automatic stabilizers. With the governments help, the unemployed citizens will be able to receive employment insurance that will help them pass by these tough times.