Courtesy of Lee Adler of the Wall Street Examiner
The trend toward fewer initial unemployment claims showed signs of accelerating this week. If that were to continue it would mean that there’s some economic support for bubbling stock prices.
The Labor Department reported today that the seasonally adjusted (SA) representation of first time claims for unemployment fell by 16,000 to 339,000 from a revised 355,000 (was 352,000) in the advance report for the week ended April 20, 2013. The consensus median economists’ estimate of 351,000 for the SA headline number was too pessimistic. It is normal for forecasters to be wrong, not just because economic forecasting is quackery, but also because the seasonally adjusted number, being made-up, is impossible to consistently guess (see endnote).
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 323,529 in the week ending April 20, a decrease of 34,690 from the previous week. There were 370,632 initial claims in the comparable week in 2012.” [Added emphasis mine]
For purposes of this analysis, I adjusted this week’s reported number up by 3,000. 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. Last week’s number was approximately 3,500 shy of the final number for that week released today. The adjusted number that I used in the data calculations and charts for this week is 327,000, rounded, which implies a week to week real decrease of 31,000. The final number for the week, to be released next week, should be near that.
The actual filings represent a decrease of 11.9% versus the corresponding week last year. That’s a big improvement from the 3.3% drop last week. It’s still within the usual range of -3% to -20% of the past two years. It is slightly better than the average year to year change of -8.7% over the past two years. The year to year comparisons are now much tougher as the number of job losses declined sharply between 2009 and 2011, so this week’s number is all the more impressive. But the numbers are volatile and we should not read too much into one week’s data.
The current week to week change of a decrease of 30,000 in the NSA number compares with an average change of a decrease of 15,500 for the same week over the prior 10 years. The comparable week has had extreme variations with both increases and decreases. In 2012 the comparable week was little changed, while in 2011 there was an increase of 6,000. By those standards, this year was especially good, but in 2010 claims fell by 76,000 in the comparable week. In view of the volatility I don’t want to read too much into the strength of this number, but if it happens a few more times over the next couple of weeks, it would be a sign that the economy is heating up, with attendant pressure on consumer prices.
The Labor Department, using the usual statistical hocus pocus, applied seasonal adjustment factors ranging from about 1.06 to about 1.13 to the week corresponding to this one over the last 10 years. This week they applied a factor of 1.05, which was below the range.
Real Federal Withholding Taxes
The real time withholding tax data, which has continued to show strength right up through this week suggests that the trend of first time claims will continue to improve. It’s hard to fathom how professional economic forecasters can miss on the weak side given this data.
I will continue to watch both withholding and claims closely for any sign of deterioration. Both remain strong. The Federal spending sequester that took effect in March have shown no ill effects yet and the tax increases that took effect in January have clearly not had a measurable negative impact.
Initial Unemployment Claims – Click to enlarge
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.
Initial Unemployment Claims and Stock Prices- Click to enlarge
Stock prices broke out of the top of their range channel earlier this year in response to the Fed’s QE 3-4. The trend rate of improvement of initial claims had slowed for a couple of months but this week’s data suggests that it may be accelerating. The Fed’s QE3-4 money printing campaign has had far more success in creating a stock market bubble, which was one of Bernanke’s stated goals (in slightly different words), than in driving economic growth, but if this acceleration in the improvement of the claims continues over the next couple of months, it would suggest that there is some trickle down.
It should also impact consumer inflation. Bond investors apparently agree. Treasuries are taking a hit today.
Primary Dealer Cash
The initial claims claims trend had been improving at a very modest rate lately, but if it is picking up again it would support the upside acceleration of stock prices this year. As long as the trend of new claims remains strong and the Fed (now joined by the BoJ) keeps cashing out the Primary Dealers every month via its asset purchase programs (QE3-4), I would not expect the uptrend channel in stocks to break down.
The central banks have the markets well rigged. A bear market is likely only when conditions force a change of Fed policy.
[I cover the technical side of the market in the Professional Edition Daily Market Updates.]
Note: There is no way to know whether the SA number is misleading or a reasonably accurate representation of the trend unless we are also looking at charts of the actual data. And if we look at the actual data using the tools of technical analysis to view the trend, then there’s no reason to be looking at a bunch of made up crap, which is what the seasonally adjusted data is. Seasonal adjustment just confuses the issue.
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. Since the third quarter of 2012, with a few exceptions it has appeared that a pessimism bias was built in to their estimates.
To avoid the confusion inherent in the fictitious SA data, I work with only the actual, not seasonally adjusted (NSA) data. 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.
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.
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