Initial Claims Still Show Dangerously Overheated Bubble Economy

by Lee Adler, Wall Street Examiner

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the first week of June was 317,000. The consensus guess of Wall Street economists was 315,000. This report was was a non event in that regard, but the actual numbers which the Wall Street captured media ignores continue to indicate a dangerous economic condition.

The headline number is seasonally adjusted, therefore fictional. It may or may not give an accurate impression of reality, depending on the week. The recent seasonally adjusted numbers give little indication that by historical standards the job market is at an extreme in terms of the record low numbers of firings and layoffs that lead to unemployment claims.

According to the Department of Labor (DOL),

“The advance number of actual initial claims under state programs, unadjusted, totaled 312,129 in the week ending June 7, an increase of 47,996 (or 16.8 percent) from the previous week. The seasonal factors had expected an increase of 44,439 (or 16.8 percent) from the previous week. There were 332,964 initial claims in the comparable week in 2013.”

Initial Claims Near Bubble Record Lows

Click to enlarge

Actual initial unemployment claims were 6.3% lower than the same week a year ago. This is within the normal range of the annual rate of change the past 3.5 years, which has mostly fluctuated between -5% and -15%.

Claims normally increase in the first week of June. The actual week to week increase of +47,996 was larger than usual for the first week of June but consistent with the performance of the past two years. When claims show larger than normal increases for several weeks, that could be the first sign of an impending change of trend.

New claims were 2,242 per million workers counted in May nonfarm payrolls. While this was not as low as recent weeks which set 17 year records for May, the current number was similar to the 2,240 per million set in the first week of June 2007 just before the credit bubble imploded and the economy collapsed.

New Claims Per Million Workers

Click to enlarge

A soft economy with high unemployment, but where hardly any workers are  laid off each week suggests that employers are holding on to the workers they have with the skill sets they need because they cannot find those skills in the enormous pool of unemployed workers. The labor market of those with needed skills is tight. The April surge in job openings supports that view. The surge in job openings far exceeds gains in employment.

Those without those skills have been marginalized into a US underclass of “untouchables” who cannot participate in, or importantly, help to drive, economic growth. Instead, they become an increasing drag on growth.

In this regard, the financial bubble driven, distorted, maladjusted, top heavy US economy appears to be stretched to its limit. For an economy to maintain healthy growth it needs a growing population of workers who can afford to consume the goods and services the economy produces. Without that growth, stagnation is the best possible outcome. With the number of workers who cannot participate in economic growth increasing either because they have no jobs or only jobs with low pay, economic implosion may be inevitable.

Timing is the issue. We don’t use economic indicators for stock market timing. The markets themselves are their own best indicators. However, when the claims data begins to weaken from the current extremes that should be a sign that the central bank driven financial engineering credit bubble has begun to deflate.

Initial Claims Hit Bubble Levels

Click to enlarge