Jobless Claims Really Jump by 40,000 – Normal For This Week, But Means Fed Blowing Stock Bubble

The headline jobless claims number is wrong again this week. Last week the headline number was too weak and this week it is too strong. When will it ever be just right? Probably never. In reality, the actual weekly change of an increase of approximately 40,000 is perfectly normal and perfectly in line with the trend of the past two years. That trend has been amazingly consistent and boring. The few exceptions always are a result of external events, like Superstorm Sandy last year, or March’s sequestration castration.

The problem is that Wall Street and its handmaiden captured propaganda media feeds the crowd a bunch of fictitious bullshit every week that leaves people scratching their asses in bewilderment because the data is so deliberately confusing. There’s no excuse for it. The Department of Labor publishes the actual numbers right along with the fictitious numbers, but I guess the Wall Street media  has left it to me to report them to you. So I shall. It’s just a shame that you are one of a very few people in the world who want to know the facts.

The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment fell by 42,000 to 346,000 from a revised 388,000 (was 385,000) in the advance report for the week ended April 6, 2013. The consensus median economists’ estimate of 365,000 for the SA headline number was too high this week, by about half the amount that they missed on the optimistic side last week. The consensus of economic forecasters is virtually always wrong, not only because forecasters are quacks practicing quackery but also because the seasonally adjusted number, being a made-up number each week,  is impossible to guess by GIGO modeling or any other method.

Note: 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.

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 353,973 in the week ending April 6, an increase of 37,025 from the previous week. There were 390,064 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 almost 3,000 shy of the final number released today for that week.  The adjusted number that I used in the data calculations and charts for this week is 357,000, rounded, which implies a week to week real increase of 40,000.  The final number for the week, to be released next week, should be near that.

The actual filings represent a decrease of  8.6% versus the corresponding week last year. That’s back within the usual range of -3% to -20% of the past two years after the rate of improvement slowed to slightly above the usual range over the past two weeks. It is almost dead on 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. The Federal spending sequestration and resulting  job furloughs apparently caused a hiccup in the rate of improvement in March, but it looks as though that will be just a one time hit rather than something that begins to feed on itself.

The current week to week change of an increase of  40,000 in the NSA number compares with an average change of an increase of 41,000 for the same week over the prior 10 years. The comparable week had increases in all of those 10 years.  The Labor Department, using the usual statistical hocus pocus, applied seasonal adjustment factors ranging from about .93 to about 1.05 to the week corresponding to this one over those 10 years. This week they applied a factor of .977. It could just as easily have been any number between .93 and 1.05.

The factor is totally arbitrary depending on a fixed formula that sometimes results in an approximate abstraction of the real trend and sometimes isn’t. So naturally everybody guesses wrong every week. Still, the media plays the game as if it means something, never bothering to point out that these are not the actual numbers, and never, ever mentioning that the consensus is virtually never, ever correct. You would think that at least one business reporter would have the curiosity to look into these facts, but they don’t. They get paid to parrot the company line, so that’s what they do.

Meanwhile, in 2012 there was an increase of  74,000 for this week while in 2011 there was an increase of 94,000. Those were the two worst years of the last 10. By those standards, this year was fantastic. But while much better than the weekly performance of the corresponding week the past couple of years, the current week’s performance was pretty average.

Real Federal Withholding Taxes

Real Federal Withholding Taxes

Any move toward a year to year increase in claims would suggest a slowing in the economy. We haven’t seen that yet either in this series or  in the real time withholding tax data.  I will continue to watch both of them closely for any sign of  deterioration that could indicate that the impact of the sequester is more than a one time hit. The softening of the past couple of weeks has now been erased, suggesting that it was a result of the Federal spending sequester that took effect in March. It does not appear that there will be any cumulative knock-on effects.

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge


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.

Initial Unemployment Claims and Stock Prices - Click to enlarge

Initial Unemployment Claims and Stock Prices- Click to enlarge

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).

Primary Dealer Cash

Primary Dealer Cash

Stocks have been trending on a beeline for 1600 plus. The initial claims claims trend has been improving at nearly the same modest rate of the past two years, with only minor variations due to external factors that created temporary distortions. In this context, the steady, modest improvement in the claims trend does not support the acceleration of stock prices this year.  However, as long as the trend of new claims remains positive and the Fed (now joined by the BoJ) keeps cashing out the Primary Dealers every month via its asset purchase programs (QE3-4), a meaningful decline in stock prices seems unlikely.

Read Jobs Report, Market Reaction, Fedhead Response All So Predictable, Who Believes This Crap?

[I cover the technical side of the market in the Professional Edition Daily Market Updates.]

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This report is excerpted from the Permanent Employment Charts page – More charts and analysis

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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