Analysts at Citigroup are warning customers that the unemployment rate could surge to 10 percent in the coming months, up from the current 7.9 percent.
It’s quite unusual — not to mention refreshing — for anyone in the financial community to make such a daring, negative prediction. Wall Street is the charter member of the everything-is-always-great club.
Tom Fitzpatrick, one of the Citi analysts who made the prediction, told me he’s basing his insight on the recent spike in initial claims for unemployment insurance. The latest weekly claims number is being released this morning.
“Nothing is ever the same in history,” said Fitzpatrick. “But sometimes you see repeating themes.”
And the pattern of recent initial jobless claims figures looks similar to that of the first quarter of 1978. Fitzpatrick says this is an omen that the jobless rate is going to spike.
Why is the negative spiral accelerating at such a rapid pace? Ask a Democrat:
“I believe the probability is we’re going over the cliff and I think that would be horrible,” President Clinton’s Chief of Staff Erskine Bowles said at a Christian Science Monitor breakfast meeting yesterday. “It would be insane to breach this fiscal cliff, yet I think there is only a one-third possibility we’ll actually get something done before December 31.”
Seat belts fastened, everyone?
Update: The NY Post piece discounts the "Sandy effect" in the weekly jobless claims, stating that there should have been a drop in claims immediately after the hurricane (due to logistical issues) followed by a jump. The "jump" existed, but with no significant drop prior. This week's jobless claims, released this morning, were 393,000, heralded as a "drop" by the media as compared to the 416,000 of the previous week. It still leaves us with a four-week rolling average of over 405,000 new claims weekly - much higher than the 360,000 to 380,000 average we saw through most of 2012 - a year with virtually no job growth.
And if you need a money quote as to what any "enthusiasm" over the drop is unwarranted, here it is:
We also saw initial claims from two weeks ago revised up to 416,000 from an original reading of 410,000, which doesn’t help. In fact, revisions have added to the number of claims 99% of the time over the past year, there are seldom reductions in the numbers when you look over the last 4 years.
Fashion show of the future (circa 2013)