Courtesy of Lee Adler of the Wall Street Examiner
The latest weekly jobless claims data remains on trend, declining at an annual rate around -9%. In spite of the recent stock price correction stocks remain dangerously extended relative to the improvement in the jobs picture.
The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment fell by 5,000 to 343,000 from a revised 348,000 (was 346,000) in the advance report for the week ended June 29, 2013. The consensus estimate of economists of 348,000 for the SA headline number was slightly too high (see footnote 1).
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 the current press release, “The advance number of actual initial claims under state programs, unadjusted, totaled 333,920 in the week ending June 29, a decrease of 2,595 from the previous week. There were 369,826 initial claims in the comparable week in 2012.” [Added emphasis mine] See footnote 2.
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 1,500 shy of the final number for that week released Wednesday. For purposes of this analysis, I adjusted this week’s reported number up by 1,500. The adjusted number that I used in the data calculations and charts for this week is 335,000 rounded. It won’t matter that it’s a thousand or two either way in the final count next week. The differences are essentially rounding errors, invisible on the chart.
The actual filings last week represented a decrease of 9.3% versus the corresponding week last year. That’s essentially the same as the 9.2% drop the week before. The average year to year improvement of the past 2 years is -8.3%, but the range is from near zero to -20%. The year to year comparisons are now much tougher as the number of job losses declined sharply between 2009 and 2012.
The current week to week change in the NSA number is a decline of 1,000. The current weekly change compares with an average change of an increase of 6,000 for the comparable week over the prior 10 years. Last year’s comparable week had a decrease of less than 1,000. The current performance is about the same as this week last year, and better than the 10 year average.
Looking at the big picture, this week’s data is absolutely in line with the trend.
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. It is most 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 were running with the initial claims trend until the Fed started QE3 and 4 late last year, causing the stock price rise to accelerate. 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, where arguably, it has done nothing. The stock market appeared to be in parabolic blowoff mode by February as a result of the excess liquidity. It reached at least a temporary limit in May.
Bernanke and his sycophants have sown tremendous confusion about when they will end QE, a reflection of their own confusion. As I wrote in the Fed Report this week, the Fed now faces a situation where it will have no choice but to cut back on QE in the months ahead. Meanwhile in other corners of the world central bank balance sheets are going the other way and in China a massive wave of liquidation has also destroyed fictitious capital in the West (see US and Japan Pump It, Chinese Dam It and Suck, And Europe Sullenly Suffers Shrinkage). So the market is probably in the final phase of the bubble.When the market reached the top of the trend channel in May, it was ripe for a correction. Now that that has happened, there’s again a chance that stock prices will decouple completely from economic indicators as long as the Fed ( joined by the BoJ) keeps cashing out the Primary Dealers every month via QE3-4. But the days of whine and poses are numbered.
More charts below.
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