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  • The USA: unemployment hint at QE


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    UnemploymentIn comparison with the European economic indicators, the US economic statistics looks quite well. But if you observe the announcements of chairman of the US Federal Reserve System Ban S. Barnanke, you noticed that he is disappointed at the slow economic growth tempo and slow job growth. In order to stimulate employment the Federal Reserve System implemented quantitative easing programs one by one. Now very often you can hear on the market that after so called “twist” operation which finishes in the end of December, we will face more quantitative easing program.

    Are these expectations well-founded? Let’s investigate it with math help.

    Acceptable employment rate in the USA is often 6.5%. When the employment rate in the USA will drop to this level, if it continues to reduce with the same tempo this year?

    Let’s use unemployment insurance claim statistics, which is published weekly by the Ministry of Labor.  Let’s investigate the unemployment rate for February and October 2012. I decided not to take the statistics for January in order to avoid seasonal factors and the statistics for November, because it was influenced by Hurricane Sandy.

    Usually traders and analysis take into account only first time claims for unemployment benefits. Nevertheless, I propose to take into consideration also repeat use of unemployment insurance. Let’s calculate an average number of unemployment insurance use in February and October. So, this is the statistics for February:

    Week closing

    First-time claims, thousands

    Repeated claims, thousands

    Total number of claims, thousands

    February 25




    February 18




    February 11




    February 4




    Average number of claims for February per week, thousands


    And, this is the statistics for October:

    Week closing

    First-time claims, thousands

    Repeated claims, thousands

    Total number of claims, thousands

    October 27 363 3127 3490
    October 20 372 3254 3626
    October 13 392 3254 3646
    October  6 342 3252 3594

    Average number of claims for October per week, thousands


    If in February around 3 million 769 thousand people claimed unemployment benefits, then in October – 3 million 589 thousand people, that is to say its number decreased less then by 180 thousand people. So, every month a number of unemployment claims decreases by 22.5 thousands.

    Let’s check our calculations. According to the official data, unemployment rate for February was at 8.3%. If an average number of unemployment claims 3769 thousands per week corresponds to unemployment rate at 8.3%, so 3589 thousands corresponds to the rate(8.3% * 3589) / 3769 = 7.9%. Let’s refer to the official statistics. Unemployment rate for October really was 7.9%. It means that our calculation is correct.

    And how many unemployment claims per week will correspond to the unemployment rate 6.5%? It is easy to calculate: 2 million 952 thousand claims, that is by 637 thousands less then in October according to weekly statistics. With the decrease tempo of 22.5 thousands per month, it is needed 28 months. Correspondingly unemployment rate will go down to 6.5% only in the February 2015.

    United States Unemployment Rate

    Of course, these are very primitive mathematical calculation, which doesn’t take into account unlineral economic processes and demographic changes. But they set definite reference point: if the US economic growth doesn’t accelerate, unemployment will stabilize to the acceptable rate only in 2015.

    Hence, it is understandable why the Federal Reserve System is going to keep interest rates at a low level till the middle of 2015 and why Bernanke is disappointed at the slow economic growth tempo and slow job growth. Since The Federal Reserve’s Dual Mandate demands from the Central Bank to take care not only of price stability but also of maximum employment, it is unlikely that the Federal Reserve System will submit my perspectives. So, I think that the widening of quantitative easing 3 in the first quarter 2013 is quite probable. Taking into account previous experience we can expect that the next widening of quantitative easing may negatively influence the dollar, but it is unlikely that this situation will be observed for a long time.

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