by Lee Adler, The Wall Street Examiner
The Labor Department reported that seasonally adjusted (SA) first time claims for unemployment rose by 4,000 to 367,000 from a revised 363,000, in the advance report for the week ended September 29. The consensus estimate of 365,000 was as close as they come. This was neither a beat or a big enough miss to get a reaction from the market. As usual, the seasonally adjusted data misstated the real performance of this measure.
The Department of Labor (DOL) reported with regard to not seasonally adjusted data, ”The advance number of actual initial claims under state programs, unadjusted, totaled 298,743 in the week ending September 29, a decrease of 4,942 from the previous week. There were 332,394 initial claims in the comparable week in 2011.” The added emphasis is mine.
Note: The DOL specifically warns that this is an advance number and states that not seasonally adjusted numbers are the actual number of claimants from summed state claims data. The advance number is virtually always adjusted upward the following week because interstate claims from many states are not included in the advance number. The final number is usually 2,000 to 4,000 higher than the advance estimate. I adjust for this in analyzing the data.
Lately the increase has been around 3,000, so that the adjusted number that I used in the data calculations is 302,000, rounded.
Also important is the fact that the DOL shows the comparison with last year. Using the adjusted figure of 302,000, this year shows a year to year decline of approximately 31,000, an improvement of 9.2% versus the corresponding week last year.
This was the lowest number of initial claims for this week since September 2007. The current week was also better than the average of the last 10 years’ claims for this week of 327,000.
On a week to week basis, claims fell by approximately 2,000. Unlike most weeks which usually move in one direction consistently, the corresponding calendar week over the prior 10 years has had small changes in both directions . Last year there was an increase of approximately 4,000, and in 2010, 1,000. The average change for the corresponding week over the previous 10 years was an increase of approximately 3,000. By these standards, last week compared favorably, but the difference wasn’t significant.
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.
This week’s data continues to be consistent with the improving trend of the past two years. It is well within the range of weekly fluctuations in the rate of change from -3% to -20% that have occurred since mid 2010. Since mid 2011, in most weeks the annual rate of change has been within a couple of percent of -10%. The trend has been remarkably consistent.
The consistency is clear in the annual rate of change graph. The rate of decrease in new claims continues to fluctuate around the -10% axis. The current year to year decline of 9.2% remains near the middle of the range of the rate of change over the past 2 years.
Given this steady improvement the Fed had no reason for additional QE other than its own state of panic in the face of the constant pundit clamor for it. But Bernanke stated that the purpose of QE now is to goose the markets and housing and hopefully cause economic growth to accelerate. He said that he would not remove the program hastily even if the economy showed signs of improvement. He all but said that the Fed will now err on the side of recklessness.
As the number of workers eligible for unemployment compensation has trended up since 2009, the percentage of workers filing first time claims has continued to decline. Comparing the yearly line for the current week to the 52 week moving average, the trend of improvement continues to track at a steady rate. The current level is at the levels of 2004 and 2005, which was when the bubble began to accelerate. By this standard, the current level of claims is far stronger than the 2oo8-09 recession period and is continuing to strengthen.
Lately, economists have been arguing about the “natural” unemployment rate. I think we’re at it now. If we recognize that the bubble period with its millions of fake jobs was abnormal, then the low level of claims during 2006 and 2007 was also abnormal. Where we are today is probably normal and the expectation that the US will ever get back to 6% unemployment is a false hope.
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. Both trends are largely driven by the Fed’s operations with Primary Dealers (covered weekly in the Professional Edition Fed Report; See also The Conomy Game, a free report). This chart suggests that as long as this trend in claims is intact, the S&P would be overbought at approximately 1450, and oversold at roughly 1200. That meant that it became overbought in mid September, on this basis.
I wrote earlier in September that “barring a much stronger improvement in the claims data which would suggest accelerating growth, the market will be at greater risk of a correction in the next few months.” But the Fed may have changed the rules on September 13, by adding more cash to the markets every month and promising to continue to so so until the unemployment rate showed sustained improvement. That will take until a new bubble emerges, spawning new fake jobs, or conversely, until rises in food, energy, and materials costs force the Fed to reverse course. [I cover the technical side of the market in the Professional Edition Daily Market Updates.]
For more charts and additional analysis, visit the permanent Employment Charts page, updated whenever new data becomes available. You can bookmark that page for future reference.
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