Is the Stimulus Effecting Unemployment Claims?

One look at initial unemployment claims being so high makes one wonder how it will effect next week’s job report.  Historically, weekly initial unemployment claims over 400,000 yields jobs growth lower than the workforce growth rate.

More disturbing is the continuing “less good” improvement in the year-over-year initial unemployment claims.

The question why initial unemployment claims are currently so high may be answered by the Congressional Budget Office (CBO) estimate of the effects of the stimulus.

For sure, the stimulus is adding less and less money to the economy – and therefore becomes an economic headwind.  Even the CBO believes the stimulus effects the labor market – but have quantified its effects on jobs growth, not initial unemployment claims.

If the relationship between stimulus and initial unemployment claims is real, it brings into question whether a stimulus is any more than a bandage on a skin ulcer.  The whole idea of stimulus is that it will start activity with government funds (increased spending or decreased taxing) which will lead to increasing private sector activity.  What if the private sector does not step back in after stimulus has occurred?