Interpreting The Head Scratching Unemployment Claims Data

Actual, not seasonally adjusted, initial unemployment claims totaled 319,349 last week, according to the Department of Labor tabulation of weekly data submitted to it by the 50 state employment departments. This number was virtually unchanged from the prior week total of 319,382. As always, the media reported only the seasonally manipulated numbers showing a decline of 5,000 claims to 359,000. And that left them scratching their heads because of a major revision of 5 years worth of seasonally adjusted crap data. Here’s how the DOL put it:

This week’s release reflects the annual revision to the weekly unemployment claims seasonal adjustment factors. The seasonal adjustment factors used for the UI Weekly Claims data from 2007 forward, along with the resulting seasonally adjusted values for initial claims and continuing claims, have been revised.

The good news is that the actual data is the actual data. It doesn’t change because of some ever changing seasonal hocus pocus factor that results in 5 years worth of data revisions that still do not accurately reflect reality.  I analyze only the actual data, which is the data that everyone should be focused on. The government reports it. The mainstream media and the economic punditry ignore it. It’s no wonder that their guesstimates have all the accuracy of a coin flip.

Because there are seasonal fluctuations that do vary widely based on underlying economic conditions, in order to determine whether this week’s number is good, bad or indifferent,  we need to compare like to like. That’s easy. Just compare this week’s number to the same week in prior years, comparing both the total, and the weekly change. Total claims during the week ended March 26, 2011 were up by 3,000 to 357,457. Total initial claims this year in the week ended March 24 were down 10.7% from that level.  The flat week to week change was this year, represents a not material improvement versus the 2011 data.

In the week ended March 27, 2010, initial claims fell by 449 to 408,204. This week’s report was not materially different than that change, and it represents a 21.8% decline from that total. Looking at the big picture, the trend rate of decline in first time claims has consistently been around 10% for the past 18 months. There’s no sign of any change in that rate, suggesting that the economy remains in a slow growth path, shedding far fewer jobs than during the 2008-2009 collapse.

Initial Unemployment Claims Chart - Click to enlarge

Initial Unemployment Claims Chart - Click to enlarge

Continuing claims are on a similar downward plane, declining for the past 3 months at approximately a 10% rate.

Continuing Claims Chart - Click to enlarge

Continuing Claims Chart - Click to enlarge

The problem here is that we have no way to know how much of that is due to people getting jobs and how much is due to people exhausting their benefits and falling through the social safety net. Many of these unfortunates resort to what I call “synthetic unemployment compensation,” aka government guaranteed student loans.

Growth of Federal Student Loans - Click to enlarge

Growth of Federal Student Loans - Click to enlarge

This chart represents the growth of Federal student loans outstanding. After hovering around $10 billion in 2007, the amounts outstanding grew to around $175 billion at the end of 2010, tracking the growth of continuing unemployment claims. But as continuing claims began to decline in 2010, these loan programs continued to grow,  with another big spike in 2010 when the Federal government temporarily allowed extended unemployment benefits to expire.

Finally late in 2011 and early this year, with continuing claims and extended and emergency Federal unemployment claims in declining trends, Federal student borrowing programs again surged. This is a sign of the hidden unemployment problem among young adults, who turn back to school out of desperate need for funds of any kind. Unfortunately, many of these loans will only be partly repaid in 40 years when the government garnishes the borrowers’ social security benefits. For now, for many this funding represents a last desperate means of sustenance.

None of the data tells us how many jobs the economy is adding, but the real time withholding tax data, adjusted for inflation tells us, “Not many,”  in fact, none.

Withholding Tax Chart- Click to Enlarge

Withholding Tax Chart- Click to Enlarge

The 4 week moving average of the annual percentage change in withholding tax collections is virtually zero, suggesting that the economy hasn’t added any jobs since this time last year. It’s probably a good bet that the  March payrolls data to be released a week from Friday will disappoint.

The claims data suggests that the labor market has been a model of consistency. While that may raise suspicion in the “vast government conspiracy” wing of economic chatterers, if the government is fudging, it has been doing so for a long time with multiple data streams. That would involve manipulation across a multitude of government agencies involving scads of data managers, analysts, and other employees. It’s likely that somebody would have squealed if the data was being falsified on a large scale over time.

While the media wallows and flails in the clearly unreliable seasonally adjusted nonsense, I think the actual data tells a reasonably clear story that seems consistent with a wide range of data that I track, as well as simple empirical observation of the real world.  Things are marginally improved today. We can debate whether the forces driving that improvement are sustainable (they’re not), and we also know that a growing parallel universe is developing with increasing numbers of people who have fallen through the cracks. But the relative improvement, however slight, is real, and that’s all that matters to buyers of equities. As long as these trends hold their own, the stock market should do so as well.

That does not change the fact that while fewer people are claiming unemployment benefits, many more have fallen off the rolls, and far fewer people have full time jobs today than 4 years ago.  That does not look likely to change any time soon based on the current data.

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  4 comments for “Interpreting The Head Scratching Unemployment Claims Data

  1. Yirgach
    March 30, 2012 at 8:25 am

    There is also the concept of full time employment at part time wage (ie McJobs)…
    This would also deflate the change in witholding taxes, especially annual seasons.

  2. mark furlong
    April 1, 2012 at 7:17 pm

    Lee, I’m a new subscriber, so I’m still feeling my way in all the excellent information you provide. Can you give any information on the flux of self-employed people, which,if increasing, would presumably lower the overall unemployment rate, but not show up in either payrolls or witholding tax, any ideas?

  3. April 1, 2012 at 7:51 pm

    Thanks for the kind words, Mark.

    Self-employeds show up in the household survey. I key on full time employment. Looking to see if there’s an upside breakout in that over the next 3 months when employment peaks. If not, it’s big trouble. But if there is, kiss any hope of more QE goodbye.

    Self employed people who incorporate their businesses do show up in the withholding data. The rest show up in the quarterly income tax collections which have been strong.

    In terms of investing, employment is a second order indicator. It’s interesting, but not terribly useful as a market indicator. Bull markets do not require strong economies or strong employment growth. Likewise, strong economic and employment numbers often foreshadow bear markets.

    My proprietary work covers liquidity and technical analysis, where the real correlations are. There’s a cause and effect relationship between liquidity and market behavior. As for timing, there’s simply nothing better than technical and cyclical analysis to stay on top of market trends and turning points. So I focus the bulk of my research in those areas.

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