Ho Hum!! Another Record Low in Initial Claims

by Lee Adler, Wall Street Examiner

The string of record low initial unemployment claims which began last September continued this week. Virtually everyone has finally caught on to it but virtually no one has commented on the danger it represents. If claims are at levels only seen at the tops of bubbles, what does that make the current environment?

With last week’s 4% GDP print it’s becoming clear that the observation I had reported for several months that the US economy is overheated in key areas is an outlandish, tin foil hatted observation. The excesses and distortions are real and those sectors that are the most distorted are beginning to impact the total numbers for the economy as a whole.

When you pay attention to actual data, it’s easy to see the facts of what is happening on the ground well before mainstream economists and the Washington-Wall Street self congratulatory echo chamber of mainstream media press release repeaters. The clueless herd religiously follows the dumbed down seasonally adjusted headline numbers rather than actual data. Is it any wonder that they usually have no idea what’s actually happening in the US economy?

Today’s report on initial jobless claims continues the pattern of extreme readings that we’ve had our eyes on for 10 months. It set another record low for this week of the year, continuing a string of record lows that began in September of last year.

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended August 2 was 289,000. That was 19,000 less than the consensus guess of Wall Street economists. The actual numbers, which the Wall Street captured media ignores, again show claims below the levels reached at the top of the housing/credit bubble in 2006. Since September 2013 when the number of claims first fell to a record low, the data has suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.

Initial Claims and Stock Prices

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The actual number for this week is also below the number reached just before the top of the internet/tech bubble in 1999. That’s both in relative terms as a percentage of the workforce, and in absolute numbers. As a percentage of the workforce it’s less than the late July 2000 reading as well.

The headline number is seasonally adjusted (SA), therefore fictional. It may or may not give an accurate impression of reality, depending on the week.

Thanks to their focus on the made up SA imaginary numbers, news media press release repeaters have given little indication that by historical standards the numbers represented a danger sign. Ten months after the fact, the headline writers have finally recognized the record levels, but the media echo chamber has presented that as positive, rather than the danger sign that it is.

Here are the actual numbers.

According to the Department of Labor,

“The advance number of actual initial claims under state programs, unadjusted, totaled 247,133 in the week ending August 2, a decrease of 10,492 (or -4.1 percent) from the previous week. The seasonal factors had expected an increase of 1,514 (or 0.6 percent) from the previous week. There were 288,861 initial claims in the comparable week in 2013. ”

Initial Unemployment Claims Below 2006

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Actual initial unemployment claims were 14.4% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between -5% and -15%. The current number is a continuation of the bubble trend.

The actual week to week change last week was a decrease of 10,400. While most weeks of the year almost always move in the same direction, the July-August turn is a swing week, sometimes increasing, sometimes decreasing. The current number is near the average change for this week of a decline of 9,800. The comparable week last year saw a rise of 7,100.

New claims were 1,782 per million workers counted in July nonfarm payrolls. This compares with 1,945 per million in this week of 2007, which was when the housing bubble was on the verge of collapse, and 2,021 per million in the comparable week of 2006, right at the top of the bubble. In September 2013, this figure set a record low. In each ensuing week the numbers have remained at or near record levels. The current number is also less than the number hit during the same week of 2000 as the tech bubble was about to collapse and below the same week of 1999 when the tech bubble was raging to a peak. In fact, going back to 1972, the last time claims were this low in this week of the year was… uh!!… never. This is an all time record.

Initial Claims Per Million Workers

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With record readings having persisted for 10 months, let’s just say that the actual numbers have given us fair warning that the Fed sponsored financial engineering bubble may not have much longer before it too begins to deflate. The numbers persisted at extreme levels at the tops of the last two bubbles for a year before the collapses got rolling. The foundations were already beginning to crumble by the time the first anniversary of record readings rolled around. We’re almost at that stage today.

I previously asked what the Fed will do when overheated sectors of the US economy begin to cool. We’re likely to find out over the course of the next 12 months.