The Labor Department reported that seasonally adjusted (SA) first time claims for unemployment fell by 23,000 to 393,000 from a revised 416,000 (was 410,000) in the advance report for the week ended November 24, 2012. The number was better than the consensus median estimate of 390,000 reported by Bloomberg in a survey of economists. The effects of Superstorm Sandy began to wash out of the data stream the week before.
Along with the headline seasonally adjusted data, which is the only data the media reports, the Department of Labor (DOL) reports the not seasonally adjusted data. It said in today’s press release, “The advance number of actual initial claims under state programs, unadjusted, totaled 357,015 in the week ending November 24, a decrease of 46,541 from the previous week. There were 372,640 initial claims in the comparable week in 2011.” [Added emphasis mine]
There was an extraordinary increase in the data in the opposite direction of a persistent 3 year trend of improvement after Hurricane Sandy. That was largely reversed in the week ended November 17. However, the rate of year to year improvement has slowed. While this may be partly due to the after effects of the storm, it also appears to be part of a trend of slightly slowing improvement that’s been underway since 2011. That rate of jobs growth seems to be losing momentum.
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.
Normally the increase between the advance number and the final number the following week has been around 2,500-4,000. Last week it was 6,000 and the week before 12,000, due to reporting delays caused by the storm. I adjusted this week’s reported number up by 5,000 because I expect the initial undercount to gradually drop back to the usual range of 2,500-4,000. The adjusted number that I used in the data calculations is 362,000, rounded. On this basis, the year to year decrease in initial claims was approximately -10,500 or 2.9%.
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.
The week to week change was a decline of 42,000, reversing much of the massive bulge in the aftermath of the storm. Over the prior 10 years, the Thanksgiving week has usually had large decreases in claims. The average change for the 10 years from 2002 to 2011 was a decrease of approximately 52,000. The range was +1,000 to -78,000. Last year that week had a decline of 68,000 and 2010 saw an drop of 52,000. By these standards, this year was a bit weaker than each of the last two years, and weaker than the average for the past 10 years. While this may be partly due to the after effects of the storm, the chart below also suggests that it may be part of a barely perceptible trend of weakening growth as the “recovery” progresses.
The annual rate of change in initial claims has ranged from -3% to -20% every week since mid 2010, with a couple of temporary minor exceptions. Since mid 2011 the annual rate of change has been within a couple of percent of -10% in most weeks. The trend has been remarkably consistent. But a second trend is now also visible on the annual rate of change graph at the bottom of the chart that shows a clear channel of slightly higher lows and higher highs indicating a slowing rate of improvement as the trend moves toward zero year to year change. This week’s annual rate of change at -2.9% is right at the upper limit of that channel.
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). The chart below has suggested for a while that as long as the trend in claims is intact, the S&P would be overbought at approximately 1450, and oversold at roughly 1220. On that basis it became overbought in mid September.
The market has pulled back since then, but whether it’s headed all the way to 1200 is doubtful, given that the Fed’s QE 3 purchases began to settle just in mid November. If the program continues at its current rate it will grow the Fed’s balance sheet by 20% and send lets of cash toward the market over the next 12 months. The FOMC October meeting minutes suggest that the Fed will expand QE. I expect it also to attempt to paper over the “fiscal cliff” just as it did with Y2k. I call the prospective anti fiscal cliff money printing, the “fiscal cliff notes” program. The Y2k papering episode helped to trigger the final blowoff of the internet bubble in Q1 2000. If no “Grand Bargain” is reached on the fiscal cliff, I expect Fed policy and the result to rhyme with Y2k in Q1 of 2013.
Some bubble jobs will likely be created in the process. But at the same time, the inflation that accompanies the money printing, whether in asset prices, commodities, or in consumer prices will force the Fed to stop QE. At that point the markets and economy will deal with the hangover from the program. In the meantime the market is likely to party on.
[I cover the technical side of the market in the Professional Edition Daily Market Updates.]
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