by Lee Adler, Wall Street Examiner
It has been a few weeks since we took a hard look at initial unemployment claims. There hasn’t been much reason to, since they seem to exist in a steady state universe, almost never deviating from the growth path they have been on for the past 5 years.
But the steady state universe theory has long been discredited. Even though the Wall Street media propaganda machine wants us to believe in steady state financial markets, chances are we’re headed for another Big Bang. Periods of stability such as the present create a false sense of complacency as the dangers grow.
The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 281,000. The Wall Street economist crowd consensus guess was almost right on the money at 283,000. The expectations game didn’t provide much excitement for the players this week.
Instead of the seasonally manipulated headline number expectations game, we focus on the trend of the actual data. Facts and reality are much more useful than the Wall Street captured media’s fantasy numbers. Actual claims were 344,002, which is another record low for this calendar week by a huge margin, continuing a nearly uninterrupted string of record lows that began in September 2013.
Employers in some sectors are hoarding workers. Similar behavior in the past has been associated with bubbles, and has led to massive retrenchment, usually within 18 months or so. In the housing bubble, similar behavior continued well beyond the peak of that bubble in 2005-06. Employers seem to take their cues from stock prices. The current string is now 4 months beyond the point at which other major bubbles have begun to deflate. Is the bungee cord simply longer this time, or is this the new paradigm?
The Department of Labor (DoL) reports the unmanipulated numbers that state unemployment offices actually count and report to the DoL each week. This week it said:
“The advance number of actual initial claims under state programs, unadjusted, totaled 344,002 in the week ending July 11, an increase of 40,416 (or 13.3 percent) from the previous week. The seasonal factors had expected an increase of 59,887 (or 19.7 percent) from the previous week. There were 370,559 initial claims in the comparable week in 2014.”
Initial Claims and Annual Rate of Change – Click to enlarge
Claims always rise substantially during this week of July. We need to know how the current week compares with this week in prior years, and whether there’s any sign of trend change. The actual change this week was an increase of 40,000 (rounded). That sounds like a lot but it is significantly less than the 10 year average of +59,000 for this week. It compared with an increase of 48,000 for that week last year.
Week to week changes are noisy. The important thing is the trend and it remains on track. Actual claims were 7.2% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. This week’s data was on the weak side of that range but slightly better than last week’s reading of -6%. These slightly weaker readings followed an unusual degree of strength that had persisted for 2 months in May and June. The last two weeks have probably been a little payback for that strength. There’s no sign yet of a significant uptick in the trend of firings and layoffs.
There were 2,409 claims per million of nonfarm payroll employees in the current week. This was a record low for that week of July, well below the 2007 previous record of 2,817. The 2007 extreme occurred just a few months before the carnage of mass layoffs that was to begin later that year. Employers were still clueless that the end of the housing bubble would have devastating effects.
Because employers apparently tend to take their cues from stock prices, we cannot depend on this data for advance warning of a decline in stock prices, although there should at least be concurrent confirmation.
Initial Claims and Stock Prices – Click to enlarge
I look at an analysis of individual state claims as a kind of advance decline line for confirmation of the trend in the total numbers. The impact of the oil price collapse started to show up in state claims data in the November-January period. While most states show the level of initial claims well below the levels of a year ago, in the oil producing states of Texas, North Dakota, Louisiana, and Oklahoma, since the beginning of 2015 claims have been consistently above year ago levels. North Dakota and Louisiana claims first increased above the year ago level in November of last year. Texas reversed in late January. Oklahoma joined the wake shortly after that.
These numbers have varied widely week to week but the trend of claims being significantly higher than the same week last year has been persistent. Texas, with a huge and more diversified economy has improved since April as the price of oil rebounded and stabilized, but the state has been showing small year to year increases in July.
In the July 11 week, 17 states had more claims than in the same week in 2014. That was up from 11, 4 weeks earlier. This number fluctuates widely week to week with many states near even. At the end of the third quarter of 2014 just 5 states showed an increase in claims year to year. At the end of 2014 that had increased to 8. In early April this year the number had risen to 22. So there has been some moderation in this trend as the oil collapse has leveled off.
The 22 states that were higher in early April gives us a benchmark to watch, similar to an advance decline line in the stock market. If the number of states showing a year to year increase in claims should exceed 22, it should be an indication that the national trend of decreasing claims is reversing. That could be an advance warning of a big stock market decline as well.
I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Pro- Federal Cash Flows report. The year to year growth rate in withholding taxes in real time is now running +5.1% in nominal terms. The growth rate has been remarkably consistent around 5-6% over the past couple of months.
The July 12 week was the reference week for the July payrolls survey. The numbers for that week were weaker than the June numbers, suggesting that Wall Street economists are likely to find their estimates for July are too high. Whether the cockamamie seasonally adjusted headline number reflects that reality or not is a crapshoot. It takes the BLS 7 revisions of the SA data over 5 years to fit it to the actual trend. The first release is hit or miss. But even if the number comes in below expectations, it probably will not influence the Fed, which remains hellbent on trying to get rates up sooner rather than later.
The Fed’s favored measure of inflation, PCE, suppresses the measurement of inflation even more than the just released CPI. If the Fed believed this data, it would be even further behind the curve in recognizing that inflation is running much hotter than the official measures show than it is. The Fed knows that, and has inserted weasel words into its various propaganda releases that it will raise rates as long as the Fed thinks that inflation is moving toward the 2% target. It does not actually need to be at the target. The Fed is prepared to ignore the official measures because the members realize that they’re bogus.
The Fed will use or ignore whatever stats it wants depending on whether they fit its preconceived narrative, which is
“We’re gonna try to raise rates at least once this year, and if that doesn’t work, we’ll think of an excuse not to do it again, because raising rates is really data dependant depending on which data dependably supports our narrative, and which data we will ignore, because it all depends on dependably dependant official data, none of which is dependable.”
The actual claims data, and actual withholding data, show the financial engineering bubble economy is still at full boil. This will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later, but only because they have conditioned the market to expect it, a conditioning that they now regret they had undertaken. So now the Fed is saying, “just once and then we’ll see.” They’re walking back expectations now because they know they will have problems getting rates to go up. I cover that subject in depth in the weekly Money-Liquidity Pro reports.