by Lee Adler, Wall Street Examiner
The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment rose by 10,000 to 354,000 from a revised 344,000 (was 340,000) in the advance report for the week ended May 25, 2013. The consensus estimate of economists of 340,000 for the SA headline number was too low after missing on the high side last week.
Economists have been getting whipsawed as they try to adjust their forecasts based on the previous week’s number. It’s a ridiculous game. Reporters frame it as the economy missing or beating the estimates, but it’s really the other way around. The economic forecasters are the ones who are screwing up. The economy is what it is.
It’s crazy that the market focuses on whether the forecasters have made a good guess or not. Aside from the fact that economic forecasting is a combination of idolatrous religion and prostitution, the seasonally adjusted number, being made-up, is virtually impossible to consistently guess (see endnote). Even the actual numbers can’t be guessed to the degree of accuracy that the headline writers would have you believe is possible.
The headline seasonally adjusted data is the only data the media reports but the Department of Labor (DOL) also reports the actual data, not seasonally adjusted (NSA). The DOL said in today’s press release,
“The advance number of actual initial claims under state programs, unadjusted, totaled 317,732 in the week ending May 25, an increase of 13,653 from the previous week. There were 346,260 initial claims in the comparable week in 2012.” [Added emphasis mine]
The advance report is usually revised up by from 1,000 to 4,000 in the following week, when all interstate claims have been counted. Last week’s number was approximately 3,000 shy of the final number for that week released today. For purposes of this analysis, I adjusted this week’s reported number up by 3,000. The adjusted number that I used in the data calculations and charts for this week is 321,000 rounded. It won’t matter that it’s a thousand or two either way in the final count next week. The differences are essentially rounding errors, invisible on the chart.
The actual filings last week represented a decrease of 7.4% versus the corresponding week last year. That’s near the 7.4% drop the week before. The average year to year improvement of the past 2 years is -8.8%, but the range is from near zero to -20%. The year to year comparisons are now much tougher as the number of job losses declined sharply between 2009 and 2012.
The current week to week change in the NSA number is an increase of 17,000, reversing last week’s decrease. It was the worst weekly performance for this week of May since 2005, but it was similar to last year’s increase of 16,000 and 2011′s 15,000. It compares with an average change of an increase of 8,000 for the comparable week over the prior 10 years. While this week was worse than normal the difference from the average is not that great.
Looking at the big picture, this week’s data is absolutely in line with the trend.
The Labor Department, using the usual statistical hocus pocus, applied a seasonal adjustment factor of 1.11. That was smaller than any factor for this week over the prior 10 years, which ranged from about 1.17 to about 1.12.
The correlation of the broad trends of claims with the trend of stock prices over the longer term is strong. It is most visible when the claims trend is plotted on an inverse scale with stock prices on a normal scale.
Stock prices were running with the initial claims trend until the Fed started QE3 and 4 late last year and early in 2013, causing the stock price rise to accelerate. In mid May, stocks reached maximum extension within the trend channel of the past two years. The Fed’s QE3-4 money printing campaign has had far more success in creating a stock market bubble, which was one of Bernanke’s stated goals (in slightly different words) than in driving economic growth. The stock market has appeared to be in parabolic blowoff mode as a result of the excess liquidity. It appears to have reached a temporary limit.
Meanwhile the trend of improvement in claims has slowed dramatically since the initial rebound in 2009 under QE 1. The improvement in the trend slowed under QE2 in 2010-11, and has slowed even more under QE3-4 beginning in late 2012. It’s clear that the latest massive round of money printing has done absolutely nothing to spur this measure of the economy. This is not an anomaly. The same result shows up in the broad spectrum of economic indicators. QE has failed. The Fed’s solution has been to do more of it, which has only served to drive the bubble in stock prices higher.
There’s plenty of room for a deep pullback in stock prices, but there’s also a chance that stock prices will decouple completely from economic indicators as long as the Fed (joined by the BoJ) keeps cashing out the Primary Dealers every month via its asset purchase programs (QE3-4). Bernanke and his sycophants have sown tremendous confusion about when they will end QE, and the market has been skittish.
This report is excerpted from the Permanent Employment Charts page - More charts!
Note: There is no way to know whether the SA number is misleading or a reasonably accurate representation of the trend unless we are also looking at charts of the actual data. And if we look at the actual data using the tools of technical analysis to view the trend, then there’s no reason to be looking at a bunch of made up crap, which is what the seasonally adjusted data is. Seasonal adjustment just confuses the issue.
Seasonally adjusted numbers are fictional and are not finalized until 5 years after the fact. There are annual revisions that attempt to accurately reflect what actually happened this week. The weekly numbers are essentially worthless for comparative analytical purposes because they are so noisy. Seasonally adjusted noise is still noise. It’s just smoother. So economists are fishing in the dark for a fictitious number that is all but impossible to guess. But when they are persistently wrong in one direction, it shows that their models have a bias. Since the third quarter of 2012, with a few exceptions it has appeared that a pessimism bias was built in to their estimates.
To avoid the confusion inherent in the fictitious SA data, I work with only the actual, not seasonally adjusted (NSA) data. It is a simple matter to extract the trend from the actual data and compare the latest week’s actual performance to the trend, to last year, and to the average performance for the week over the prior 10 years. It’s easy to see graphically whether the trend is accelerating, decelerating, or about the same.
The advance number for the most recent week is normally a little short of the final number the week after the advance report, because the advance number does not include all interstate claims. The revisions are minor and consistent however, so it is easy to adjust for them. Unlike the SA data, after the second week, they are never subsequently revised.
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