by Lee Adler, Wall Street Examiner
First time unemployment claims are currently declining at a 6% annual rate, staying close to the average year to year drop of the past two years. Trickle from the Fed’s massive money printing has overcome any fiscal drag from higher tax rates, and should blunt any impact of the tiny reductions in government spending as a result of sequestration. The decline in claims continues to surprise economists, who apparently pay no attention to the strength in tax withholding data, a real time indicator.
The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment fell by 10,000 to 332,000 from a revised 347,000 (was 340,000) in the advance report for the week ended March 9, 2013. Because the advance report does not include all interstate claims, it is usually revised up by from 1,000 to 4,000 in the following week. The current revision was within that range.
The number beat the consensus median economists’ estimate of 350,000 reported by major business media. The consensus estimate is rarely on the mark and lately the Wall Street economic forecasting crowd has been persistently underestimating the degree of improvement in the trend. This is hard to understand given that the trend has been so persistent, and in view of the fact that real time data on tax withholding has shown very strong gains.
To be fair, the business of seasonal adjustment remains a haphazard and arbitrary process. 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 simply don’t work, or that they have a bias.
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 315,356 in the week ending March 9, a decrease of 20,324 from the previous week. There were 340,102 initial claims in the comparable week in 2012.” [Added emphasis mine]
I adjusted this week’s reported number up by 2,500, based on last week’s DOL revision. The adjusted number that I used in the data calculations and charts is 318,000, rounded.
This year’s filings represented a decrease of 6.5% versus the referenced week last year. That’s completely consistent with the trend.
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 current week to week change was an increase of 26,000 in the NSA number. That compares with an average increase of 20,000 over the prior 10 years. The comparable week showed increases in 8 of those 10 years. In 2012 the increase was 34,000 while in 2011 there was an increase of 56,000. The current week’s performance was better than 5 of those 10 years.
It seems clear that the fiscal cliff tax increases had no negative impact on the trend. The sequester should also have little noticeable impact. If there’s going to be an impact, it should start to show up in the data toward the end of March. Don’t hold your breath.
Since mid 2010 the annual rate of change in initial claims has ranged from -3% to -20% in virtually every week, with a couple of temporary minor exceptions, including the Superstorm Sandy surge. Since mid 2011 the annual rate of change was within a couple of percent of -10% in most weeks. The trend has been remarkably consistent.
I would expect some moderation in the rate of improvement in the weeks and months ahead. Further reductions in the number of new claims should be much more difficult to achieve going forward as the year to year comparisons become tougher.
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.
Stock prices have broken out of the top of their range channel, while initial claims have not. As a monetary/technical analyst, the only conclusion I would draw is that the Fed’s QE3-4 money printing campaign is having far more success in creating a stock market bubble, which was one of Bernanke’s stated goals, than in driving economic growth. Stocks appear to be accelerating on a beeline for 1600 plus, while initial claims continue to improve at the same modest rate of the past two years. As long as the trend of new claims doesn’t turn negative, the broad uptrend in stock prices should remain intact.
Permanent Employment Charts page – More charts and analysis
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