Initial Unemployment Claims Rapidly Coming Back To Trend, Post Superstorm Sandy
by Lee Adler, Wall Street Examiner
The Labor Department reported that seasonally adjusted (SA) first time claims for unemployment fell by 41,000 to 410,000 from a revised 451,000 (was 439,000) in the advance report for the week ended November 17, 2012. The number was better than the consensus estimate of 418,000-423,000. The effects of Superstorm Sandy are beginning to wash out of the data stream.
Along with the headline seasonally adjusted data, which is the only data the media reports, the Department of Labor (DOL) reports the not seasonally adjusted data. It said in today’s press release, “The advance number of actual initial claims under state programs, unadjusted, totaled 397,671 in the week ending November 17, a decrease of 80,872 from the previous week. There were 440,157 initial claims in the comparable week in 2011.” [Added emphasis mine] The year to year decline was at the rate of -8.5%.
Last week we saw an extraordinary increase in this data, several multiples of the typical year to year change for the past several years, in the opposite direction of a persistent 3 year trend. Were it not for the storm hitting the most heavily populated region of the US, that number would have been deeply alarming. But it now seems that things are quickly getting back to “normal.” The annual rate of change is back to within the norms of the past two years.
Note: The DOL specifically warns that this is an advance number and states that not seasonally adjusted numbers are the actual number of claimants from summed state claims data. The advance number is virtually always adjusted upward the following week because interstate claims from many states are not included in the advance number. The final number is usually 2,000 to 4,000 higher than the advance estimate. I adjust for this in analyzing the data.
Normally the increase between the advance number and the final number the following week has been around 2,500-4,000. Last week it was 12,000, due to reporting delays caused by the storm. I adjusted this week’s reported number up by 5,000 because I expect the initial under-count to drop back to the usual range of 2,500-4,000. The adjusted number that I used in the data calculations is 403,000, rounded. On this basis, the year to year decrease in initial claims was approximately -37,500 or 8.5%.
Note: To avoid the confusion inherent in the fictitious SA data, I analyze the actual numbers of claims (NSA). 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 week to week change was a decline of 76,000, reversing much of the massive bulge in the aftermath of the storm. Over the prior 10 years, the third week of November has had both large increases and large decreases in claims. There’s no consistent seasonality evident. The average change for the 10 years from 2002 to 2011 was an increase of approximately 24,000. The range was +85,000 to -54,000. Last year had an increase of 77,000 and 2010 saw an increase of 55,000. This year’s drop of 76,000 was in contrast to the prior week’s outlier increase of 108,000. The 2 week change was an increase of 41,000. That’s still a little higher than the increase of 38,000 for the corresponding 2 week period last year and well above the 10 year average 2 week change of +14,000. While things aren’t back to “normal,” they took a big step in that direction last week.
Considering that the trend has until now been remarkably consistent and that the week before the storm showed initial claims declining by around 40,000 in each of the last two years, the jump in the week following the storm suggested storm related losses in the vicinity of 150,000 jobs (difference between a jump of 108,000 and the normal decline of 40,000). This week’s drop in claims of 76,000 compares with the 10 year average of an increase of 24,000, and last year’s increase of 77,000 in the corresponding week. That suggests that somewhere between 100,000 and 150,000 people went back to work that week, erasing most of the storm related job losses, which now look temporary. It does not appear that Sandy will have significant long lasting collateral damage.
The annual rate of change in initial claims has ranged from -3% to -20% every week since mid 2010, with a couple of temporary minor exceptions. Since mid 2011 the annual rate of change has been within a couple of percent of -10% in most weeks. The trend has been remarkably consistent. Trips outside the range have been rare, and have been due to statistical calendar aberrations rather than any “facts on the ground.” This week’s change of -8.5% is well within these norms.
Plotted on an inverse scale, the correlation of the trend of claims with the trend of stock prices over the longer term is strong, while allowing for wide intermediate term swings in stock prices. Both trends are largely driven by the Fed’s operations with Primary Dealers (covered weekly in the Professional Edition Fed Report; See also The Conomy Game, a free report). The chart below has suggested for a while that as long as the trend in claims is intact, the S&P would be overbought at approximately 1450, and oversold at roughly 1220. On that basis it became overbought in mid September.
The market has pulled back since then, but whether it’s headed all the way to 1200 is doubtful, given that the Fed’s QE 3 purchases began to settle just last week. If the program continues at its current rate it will grow the Fed’s balance sheet by 20% and send lets of cash toward the market over the next 12 months. The FOMC October meeting minutes suggest that the Fed will expand QE. I expect it also to attempt to paper over the “fiscal cliff” just as it did with Y2k. Perhaps we can call the Fed’s anti fiscal cliff money printing, the “fiscal cliff notes” program. The Y2k papering episode helped to trigger the final blowoff of the internet bubble in Q1 2000. If no “Grand Bargain” is reached on the fiscal cliff, I expect Fed policy and the result to rhyme with Y2k in Q1 of 2013. Some bubble jobs will likely be created in the process.
[I cover the technical side of the market in the Professional Edition Daily Market Updates.]
For more charts and discussion on this topic visit the permanent Employment Charts page from which this report is excerpted. That page is updated whenever new data becomes available. You can bookmark it for future reference.
Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!