Party Like Its 1999

January 19th, 2014
in contributors

Year end initial unemployment claims parallel 1999 and 2005

by Lee Adler, Wall Street Examiner

The headline seasonally adjusted number for initial unemployment claims scored a tiny beat versus the consensus expectations of economists, at 339,000 versus the consensus guess of 345,000 according to the Wall Street Journal. Bloomberg touted the news with a headline proclaiming that it was the lowest figure in a month. However, actual, not seasonally adjusted claims as counted and reported to the Department of Labor by the 50 states were 443,513, up about 26,000 from the prior week.

Follow up:

As the DOL put it, "The advance number of actual initial claims under state programs, unadjusted, totaled 443,513 in the week ending December 28, an increase of 25,875 from the previous week. There were 490,099 initial claims in the comparable week in 2012." The numbers initially reported do not include all interstate claims and are usually revised up by 1,500 to 4,000 in the following week.

The real news about the current number is the headline on this post. This was the fewest initial claims for the last week of December since 1999. Stocks topped out a few months later in 2000 as the internet/tech bubble began to collapse. Claims reached a similar level in the final week of 2005. That bull move wasn't finished for another 16 months.

While the DOL fully reports the seasonally finagled number, which is sometimes misleading, it also fully reports the actual numbers, with the year ago comparison. The media don't bother to report mundane things like what actually happened. They prefer the abstract impressionism of the seasonal manipulation.

I like to look at the actual numbers and apply a little technical analysis. The current number was down 9.5% from the comparable week a year ago. That's right on the trend going back to mid 2010. On a week to week basis, claims rose by nearly 26,000. That was better than the 33,000 increase in the same week last year. The 10 year average for that week was an increase of 37,000.

Initial Claims- Click to enlarge

Initial Claims- Click to enlarge

What does this mean for stocks? A plot of the S&P 500 along with the actual weekly initial claims on an inverted scale shows strong correlation.

Initial Claims and Stock Prices - Click to enlarge

Initial Claims and Stock Prices - Click to enlarge

Stock prices are running away from the trend on the upside. That's what bubbles do. Note that the claims trend stopped improving in 2006, more than a year before stock prices topped out in 2007. No two periods are exactly alike, but with Fed support continuing, stock prices can ignore any signs of economic slowing for a while. So far, in terms of this claims trend at least, there is no sign of slowing.

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