WaMu - A Leading Indicator of Initial Jobless Claims?
Yesterday Washington Mutual Inc. (WaMu), a national depository institution with a concentration in the home mortgage business, announced that it was eliminating 10 of its processing offices, which would result in a 2,500 person staff cut. Given that mortgage applications have been falling on a year-over-year basis since the fall of last year (see Chart 1), I guess that it is not too surprising that WaMu might be cutting back on its operations. And, given that housing affordability has plummeted to its lowest level since 1991 (see Chart 2), I guess it is not too surprising that mortgage applications are falling.
Chart 1
Chart2
What does this have to do with initial jobless claims? Given that at least 40% of new job creation in this expansion has been directly or indirectly related to the housing boom and given that the housing demand is cooling (but apparently not housing supply, as discussed by Asha below), then we can expect more WaMu-like staff-reduction announcements from housing-related businesses going forward. Perhaps it already is happening, just not being formally announced inasmuch as the year-over-year change in initial jobless claims is no longer falling. This is shown in Chart 3. Prior to the Katrina-effect in September, initial jobless claims were falling by about 10% year-over-year. In the latest week (February 11), new jobless claims were about the same as year-ago. As the housing sector continues to cool, especially now that Chairman Bernanke has indicated further rate hikes and the bank regulators issue guidelines recommending tighter mortgage lending standards, initial jobless claims are likely to rise above year-ago levels.
Chart 3
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Author: Paul Kasriel
Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
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Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.
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