Employment: Has Been Improving but Outlook Weakening

by Lee Adler, The Wall Street Examiner

While the mainstream media was reporting that jobless claims were steady last week, the real picture was more nuanced. The media reports only the seasonally smoothed number, which can obscure what’s really going on and is often late in recognizing trend changes because of the inherent smoothing. I liken it to Impressionist Art. It’s an attempt to represent reality, but it isn’t reality. It’s more beautiful than reality.

The actual number showed a decline in claims this week, as is normal for this week in May. It was a smaller decline than last year, but a stronger performance than the previous 10 year average.

Actual, not seasonally manipulated, weekly initial unemployment claims, while volatile week to week, have continued to decrease at a relatively constant rate over time since mid 2010.

In the week ended May 12, actual claims fell by 15,600 including the usual upward adjustment of 4,000 due to incomplete state counts at the time of the advance release (current week). This week wasn’t as strong as the week ended May 14, 2011, when claims fell by 36,200 but it was better than the 10 year average of a decline of 5800 for the same week of May.

There’s a lot of week to week volatility in the data. Looking at a two week span this year showed a decline of 6,700 versus a decline of 54,400 in the same 2 weeks in 2011. So this year was much weaker than the similar period last year. It’s too soon to say if this is a sign that the trend of improvement has reversed, but it could be a canary in the coal mine.

The year to year decline was 9.6% which remains strong. Total claims in the current week were 327,000, including the upward adjustment for the usual weekly revision, versus 362,000 in the same week last year. While this is a good indication that fewer people are losing jobs, it does not tell us how many are finding work.

Initial Unemployment Claims - Click to enlargeInitial Unemployment Claims – Click to enlarge

Plotted on an inverse scale, the correlation with stock prices is strong. Both are driven by the Fed’s operations with Primary Dealers as covered weekly in the Wall Street Examiner Professional Edition Fed Report. See also The Conomy Game, a free report.

Initial Unemployment Claims and Stock Prices - Click to enlargeInitial Unemployment Claims and Stock Prices- Click to enlarge

As the number of workers eligible for unemployment compensation has trended upward slightly since 2009, the percentage of workers filing first time claims has continued to decline.

Initial Unemployment Claims Percentage of Total Employed - Click to enlargeInitial Unemployment Claims Percentage of Total Employed – Click to enlarge

The chart below gives a longer term perspective. We can see the trend improving but still above the bubble years with their 10 million fake jobs taking orders for new and unneeded condos and houses, building them, and taking and processing mortgage applications. This however does not account for the thousands of mortgage industry executives and Wall Street bankers who should be in jail but who still have jobs, and still bribe politicians.

Initial Unemployment Claims Long View - Click to enlargeInitial Unemployment Claims Long View – Click to enlarge

The following chart is a picture of reality versus the the Impressionist art of seasonal adjustments. Sometimes it represents reality to some degree, and sometimes it doesn’t. If you are following that data, at any given time you have no way of knowing which it is. One thing is certain. It ain’t photo-realism. There are ways to measure trends using actual data. One way is shown on this chart, which is to show the year to year line as of the current and corresponding date. Another is to view the annual rate of change as shown in the first chart above.

Initial Claims, Seasonally Manipulated vs. Actual - Click to enlargeInitial Claims, Seasonally Manipulated vs. Actual – Click to enlarge

Federal Withholding Receipts Weaken

The edge that Federal Withholding Tax collections had held over last year continued to narrow last week, suggesting a weakening employment picture in May.

The chart below compares current withholding tax collections with last year on the same date. This year collections have been running slightly ahead of last year in nominal terms. As of May 17, collections for the prior 10 business days were 3% greater than last year. A month ago, the edge was 4%. The 1 month moving average was 2.4% higher than last year. At the end of April the 1 month moving average was 4.2% higher than last year.

Federal Withholding Taxes DailyFederal Withholding Taxes Daily – Click to enlarge

This chart looks at the year to year change in withholding in real terms, adjusted by the average weekly wage data from the BLS. On this score, following a bulge in March that was probably due to mutual fund withholding for capital gains distributions, the comparison is now slightly negative in real terms which does not bode well for employment in May. The employment surveys are taken for the week which includes the 12th day of the month. In real terms, adjusted for the increase in average weekly earnings, the current week was down 1.4% versus the same week last year. That does not bode well for the coming jobs reports for May.

Real Federal Withholding Taxes - Click to enlargeReal Federal Withholding Taxes – Click to enlarge

Note: These 2 charts are updated and analyzed weekly in the Wall Street Examiner Professional Edition Fed Report in conjunction with their implications for employment, and in particular the Federal deficit and Treasury supply.

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