Diane Swonk, Chief Economist
August 19, 2010 – 7:30 a.m. CT
Unemployment Claims Rise as Troops Return from Iraq
Unemployment soared to 500,000 from an upwardly revised 484,000 during the second week of August, while continuing claims remained elevated.
Distortions created by the end of census hires and the timing of plant closings in the auto industry (later than usual) help to explain the persistently high level of claims.
We are also likely seeing a rise in claims associated with the return of soldiers from Iraq. Some 50,000 troops are expected to return from Iraq by the end of August, and a good portion of those veterans are finding the labor market even less accommodating than when they left. Veterans who receive honorable discharges are eligible for unemployment insurance, and extensions to that insurance if they are available in six months.
The Bottom Line: The labor market appears to be caught in a sort of no man's land, where firing has abated, but hiring has yet to really pick up. This has left an unusual number of workers on long-term unemployment, and significantly raises the risk of them giving up and leaving the labor force entirely. Labor mobility, which was once one of the great strengths of the U.S. economy, is particularly constrained as many people can't afford to sell their home and move elsewhere.
The only light on the horizon is that rents appear to be firming, which means that investors snapping up foreclosed properties and the majority of homeowners who still have equity in their homes may be able to rent their properties at a profit if they are willing to trade down. This is already happening in some of the worst affected markets in California, and could be a way out for some homeowners who feel stuck where they are.
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