by Lee Adler, Wall Street Examiner
The headline seasonally adjusted number for initial unemployment claims was more wrong than usual this week, showing a year to year increase of 17,000 when the actual data showed a year to year decline of 1,700. Therefore the one week increase in new claims of 28,000 which the mainstream media reported was also wrong and misleading. The actual year to year change is a slower rate of improvement than in prior months, but not as bad as the seasonally adjusted number suggests.
The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment rose by 28,000 to 385,000 from an unrevised 357,000 in the advance report for the week ended March 30, 2013. The consensus median economists’ estimate of 345,000 for the SA headline number was too low this week. Economic forecasters have gone from being consistently too pessimistic since last September to too optimistic over the last two weeks. However, in this case, it may simply be that the SA number is wrong.
Seasonally adjusted numbers are fictional and are not finalized until 5 years after the fact. There are annual revisions that attempt to accurately reflect what actually happened this week. The weekly numbers are essentially worthless for comparative analytical purposes because they are so noisy. Seasonally adjusted noise is still noise. It’s just smoother. So economists are fishing in the dark for a fictitious number that is all but impossible to guess. But when they are persistently wrong in one direction, it shows that their models have a bias. For months it appeared that a pessimism bias was built in to their estimates. The last two weeks went the other way.
I work with only the actual, not seasonally adjusted (NSA) data. The advance number for the most recent week is normally a little short of the final number the week after the advance report, because the advance number does not include all interstate claims. The revisions are minor and consistent however, so it is easy to adjust for them. Unlike the SA data, after the second week, they are never subsequently revised.
The headline seasonally adjusted data is the only data the media reports but the Department of Labor (DOL) also reports the actual data, not seasonally adjusted (NSA). The DOL said in today’s press release, “The advance number of actual initial claims under state programs, unadjusted, totaled 314,016 in the week ending March 30, a decrease of 1,596 from the previous week. There were 315,714 initial claims in the comparable week in 2012.” [Added emphasis mine]
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.
For purposes of this analysis, I adjusted this week’s reported number up by 1,000. The advance report is usually revised up by from 1,000 to 4,000 in the following week, when all interstate claims have been counted. This week was a rare exception, with no upward revision. Last week’s number was very close to the final number released today for that week. The adjusted number that I used in the data calculations and charts for this week is 315,000, rounded.
This year’s actual filings represented a decrease of 0.2% versus this week last year. That’s above the usual range of -3% to -20%. The rate of improvement has slowed over the past two weeks. The year to year comparisons are now much tougher as the number of job losses, which had been declining sharply since 2009, begins to stabilize at a base level. The Federal spending sequestration and resulting job furloughs have probably also had an impact.
The current week to week change of a decline of 1,500 in the NSA number compares with an average change of an increase of 1,200 for the same week over the prior 10 years. The comparable week had increases in only 4 of those 10 years. Claims dropped in 6 of those years. There’s no seasonal pattern evident, yet the Labor Department, using the usual statistical hocus pocus, applied an upward adjustment of 1.226 to this week’s number. That is among the highest factors applied for any week of the year. That’s a big distortion of reality.
Meanwhile, in 2012 there was an decrease of 600 for this week while in 2011 there was a decrease of 7,700. These numbers are relatively small compared to weekly changes which usually number in the tens of thousands. So, while a little weaker than the weekly performance of the past couple of years, the current week’s performance was otherwise unremarkable, with weakness probably being attributable to the sequester. The question is whether it’s a one shot deal or something more.
Any move toward a year to year increase in claims would suggest a substantive slowing in the economy. We haven’t seen that yet in the real time withholding tax data, but we need to watch both that series and this one closely in the weeks ahead for any sign of further deterioration that could indicate that the impact of the sequester is more than a one time hit.
While there are wide intermediate term swings in stock prices, the correlation of the broad trends of claims with the trend of stock prices over the longer term is strong. This is clearly visible when the claims trend is plotted on an inverse scale with stock prices on a normal scale.
Stock prices have broken out of the top of their range channel, while initial claims have not. As a monetary/technical analyst, the conclusion I draw is that the Fed’s QE3-4 money printing campaign is having far more success in creating a stock market bubble, which was one of Bernanke’s stated goals (in more slightly different words), than in driving economic growth (see Factory Data Shows US Manufacturing Dead In The Water As Headlines Mislead).
Stocks appeared to be trending on a beeline for 1600 plus until this week. The initial claims claims trend, which had been improving at the same modest rate of the past two years, now appears to be slowing. In this context, further gains in stock prices are no longer supported. However, as long as the trend of new claims doesn’t turn negative and the Fed keeps jamming cash into the accounts of Primary Dealers via its asset purchase programs (QE3-4), a meaningful decline in stock prices seems unlikely. But if the deterioration in claims persists, the rally’s days may be numbered. The issue may be whether the impact of sequester is a one time hit to the trend or something that shifts the longer term momentum. That won’t be clear for another several weeks.
This report is excerpted from the Permanent Employment Charts page – More charts and analysis
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