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.
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.