Unemployment Claims Highlight Structural Employment Problems
July 14th, 2014
in aa syndication
by Lee Adler, Wall Street Examiner
Initial claims for unemployment remain near bubble record levels after first reaching that extreme in September of last year. The warning signs of a distorted, maladjusted, overheated economy continue.
The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended July 5, the 26th week of the year, was 304,000. The consensus guess of Wall Street economists was 311,000, a good guess. The actual numbers, which the Wall Street captured media ignores, continue to show claims near the levels reached at the top of the housing/credit bubble in 2006, a condition which has now persisted for 10 months. Since September 2013 when the number of claims first fell to a record low, the numbers have suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.
The headline number is seasonally adjusted, therefore fictional. It may or may not give an accurate impression of reality, depending on the week. The recent seasonally adjusted numbers, and the way the mainstream media reports the numbers, give little indication that by historical standards the numbers of firings and layoffs that lead to unemployment claims represent a danger sign. No one is ringing alarm bells. Bulls view this condition as a sign that the economy has reached “escape velocity,” whatever that means. Bears suggest that this is as good as it gets. I think it’s even more ominous than that.
It’s standard practice in the media for mainstream pundits to be looking the wrong way, but until the last couple of weeks I hadn’t even seen any independent bloggers raise this issue either. Now some observers have come up with the term “as good as it gets.” They’re catching up to reality, but are still behind the curve. In my view, the economy reached that level last fall. Perhaps a year or two from now they will look back and say, “The economy was overheated, but nobody saw it,” except for those of us who pay attention to the actual data, as opposed to the seasonally adjusted diversion that everyone is fixated on.
According to the Department of Labor:
“The advance number of actual initial claims under state programs, unadjusted, totaled 322,248 in the week ending July 5, an increase of 16,542 (or +5.4 percent) from the previous week. The seasonal factors had expected an increase of 28,394 (or + 9.3 percent) from the previous week. There were 383,811 initial claims in the comparable week in 2013."
Actual initial unemployment claims were a whopping 16% lower than the same week a year ago, but this could be a calendar factor. The 26th week of the year ended at the end of June last year. Compared to that week this week’s number is down just 4%. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between -5% and -15%. There’s no news here, just a continuation of the bubble trend.
The actual week to week change last week was an increase of 16,500. Increases are normal in early July, but this was by far the smallest increase of the past decade for this week. The average change for the comparable week over the past 10 years was an increase of more than 52,000. As good as it gets, or dangerously overheated and distorted? I think the latter. Time will tell.
New claims were 2,306 per million workers (based on June nonfarm payrolls). This compares with 2,160 per million in this week of 2007 and 2,217 per million in the comparable week of 2006, at the very top of the housing bubble. In September 2013, this figure set a record low. It continues to hover near record levels.
A soft economy with high unemployment, but where hardly any workers are laid off each week suggests that employers are holding on to the workers they have with the skill sets they need because they cannot find those skills in the enormous pool of unemployed workers. The labor market of those with needed skills is tight. The recent surge in job openings shown by Janet Yellen’s favorite measure, the JOLTS Survey (Job Openings and Labor Turnover), supports that view.
The current surge in job openings now exceeds the number reached at the peak of the housing bubble. The Fed drives stock bubbles and employers take their cues from stock prices, following the market up and finally going “all in” on hiring as the bubble reaches its zenith. By the standards of the 2003-2006 housing bubble, the US economy has now reached a similar extreme in the current “financial engineering bubble.” From this perspective, this is a dangerous condition that could once again be a precursor to collapse as the Fed gradually stops the pumping that inflated this bubble.
Meanwhile, those without the needed job skills have been marginalized into a US underclass of “untouchables” who cannot participate in, or importantly, help to drive, economic growth. Instead, they become an increasing drag on growth.
In this regard, the bubble driven, distorted, maladjusted, top heavy US economy appears to be stretched to its limit. For an economy to maintain healthy growth it needs a growing population of workers who can afford to consume the goods and services the economy produces. Without that growth, stagnation is the best possible outcome. With the number of workers who cannot participate in economic growth increasing either because they have no jobs or only jobs with low pay, economic implosion may be inevitable.
Timing is the issue. We don’t use economic indicators for stock market timing. The markets themselves are their own best indicators. However, when the claims data begins to weaken from the current extremes, that should be a sign that the central bank driven financial engineering credit bubble has begun to deflate