We highlight General Motors Corp. (GM), AK Steel Holding Corp. (AKS) and ArcelorMittal (MT).

To my mind, the most significant "green shoot" we have seen in the economic data was the topping out of the four-week average of initial claims for unemployment insurance in early April. In this regard, I find today's data deeply troubling.

New claims rose by 32,000 in the last week to 637,000. This caused the four-week average to rise by 6000 to 630,500. While it is still well below its peak of 658,750 this reversal of direction is distinctly unwelcome. Historically, the four-week average peaks right around the point where the National Bureau Of Economic Research (NBER) eventually gets around to dating the end of the recession. Because of this, it is important to watch the number like a hawk.

Think of initial claims as a river running into a lake. The lake is continuing claims.? There are two rivers that run out of the lake, one that leads to happiness and the other to despair. The happy river is when continuing claims fall because the person got a new job, while the river of despair is when the unemployment claim simply runs out and the person is left with no income at all.

The data does not directly tell us the flow rates of either of those rivers (the monthly jobs report helps answer that question). However, in any case it looks like both rivers are partially dammed up right now. Every week the level of continuing claims rises to a new record, flooding the shores. This week it stands at 6.56 million, an increase of 202,000 in a single week.

To some extent that may be due to extensions of unemployment benefits due to the stimulus bill. That has helped to slow the flow into the river of despair. However, it also seems to be due to a lack of new jobs being created.

The river of happiness appears to be a trickle, and is not available to irrigate the green shoots of the economy. The graph below (larger version available at http://www.calculatedriskblog.com/) shows the level of continuing claims as well as the four week average of new claims.

If you look very carefully, you can see the dip at the end of the blue line. However, note that it is possible to have false signals, for example look carefully at the way up in the 1982 recession, it was not a smooth line. I would also note that in the last two recessions, the four-week average did not move straight down the way it did in earlier recessions -- rather it moved off a peak and then sort of plateaued.

Thus even if this does not turn out to be a false peak, it does not mean that happy days are here again. I would expect a rather large mesa to form even if we have seen the actual top tick in the series.

There are a huge number of obvious sources to cause initial claims to start to rise again. The most notable of these are the effects of the Chrysler bankruptcy and the very high potential for General Motors (GM) to follow. This not only causes layoffs directly at GM, but throughout the country. Just this week, AK Steel (AKS) announced that it was closing a mill in Kentucky which will cause 750 layoffs, and ArcelorMittal (MT) will close a steel plant in Indiana causing 1,000 jobs to be lost.

Even under the out-of-court restructuring plan, GM is going to shut down over 2000 dealers. If you assume 50 people work at each dealership (salesmen, mechanics, etc.) that adds up to 100,000 jobs right there. State and local budgets are also under severe stress, and that may cause very significant layoffs of teachers, firefighters, prison guards and social workers (not to mention even longer waits at the Department of Motor Vehicles).

Yes the stimulus package helped a bit there, but it has only partially filled the hole. The four-week average is a key indicator. Watch it closely, since it could go either way at this point.