Technical indicators and screening measures were positive again Thursday while the market averages treaded water. There are lots of technical positives, but also some...
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This page is no longer being updated as of June 7, 2013. For latest charts and data, visit the Employment Section.
The latest weekly jobless claims data remain smack on trend. There’s no evidence that QE has caused any improvement and by the same token there’s no evidence that the fiscal cliff tax increase in January or the government spending sequester has had any negative impact. QE has managed to push stocks to bubble levels however.
The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment fell by 11,000 to 346,000 from a revised 357,000 (was 354,000) in the advance report for the week ended June, 2013. The consensus estimate of economists of 348,000 for the SA headline number almost on the mark for a change, after missing on the low side last week.
Economists adjust their forecasts based on the previous week’s number, leading to them frequently getting whipsawed. Reporters frame it as the economy missing or beating the estimates, but it’s really the other way around. The economic forecasters are the ones who are screwing up. The economy is what it is. This week is one of those rare random events where the consensus guesstimate came close to “the number.”
Note: It’s crazy that the market focuses on whether the forecasters have made a good guess or not. Aside from the fact that economic forecasting is a combination of idolatrous religion and prostitution, the seasonally adjusted number, being made-up, is virtually impossible to consistently guess (see endnote). Even the actual numbers can’t be guessed to the degree of accuracy that the headline writers would have you believe is possible.
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 293,021 in the week ending June 1, a decrease of 27,102 from the previous week. There were 324,3825 initial claims in the comparable week in 2012.” [Added emphasis mine]
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 2,500 shy of the final number for that week released today. For purposes of this analysis, I adjusted this week’s reported number up by 2,500. The adjusted number that I used in the data calculations and charts for this week is 296,000 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 8.9% versus the corresponding week last year. That’s slightly better than the 7.5% drop the week before. The average year to year improvement of the past 2 years is -8.8%, 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 decrease of 25,000, sharply reversing last week’s worst weekly performance for that week of May since 2005. The currently weekly change compares with an average change of a decrease of 15,000 for the comparable week over the prior 10 years. This week was not only much better than the 10 year average, it was also better than last year’s drop of 22,000, and 2011′s 15,000.
Looking at the big picture, this week’s data is absolutely in line with the trend.
The Labor Department, using the usual statistical hocus pocus, applied a seasonal adjustment factor of 1.18. Over the prior 10 years the factor for the comparable week has ranged from about 1.1 to about 1.22.
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.
Stock prices were running with the initial claims trend until the Fed started QE3 and 4 late last year and early in 2013, causing the stock price rise to accelerate. Stocks reached maximum extension within the trend channel of the past two years in mid May. Since then, stock prices have pulled back. 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. The stock market appeared to be in parabolic blowoff mode as a result of the excess liquidity. It reached a temporary limit in mid May.
Meanwhile the trend of improvement in claims slowed sharply since the initial rebound in 2009 under QE 1. The improvement in the trend slowed under QE2 in 2010-11, and has slowed even more under QE3-4 beginning in late 2012. It’s clear that the latest massive round of money printing has done absolutely nothing to spur this measure of the economy. This is not an anomaly. The same result shows up in the broad spectrum of economic indicators. QE has failed. The Fed’s solution has been to do more of it, which has only served to drive the bubble in stock prices higher.
Left wing conomists have complained that the Federal Government’s fiscal cliff and spending sequester has take a chunk out of growth. There’s absolutely zero support for that claim in the claims data. The trend is the same since those actions took effect, as before. Economists find it easy to make bullshit claims. It’s much harder for them to support those claims unless they lie, which is another common trick they have up their sleeves.
There’s plenty of room for a deep pullback in stock prices from here, but there’s also 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 its asset purchase programs (QE3-4). Bernanke and his sycophants have sown tremendous confusion about when they will end QE, which has made the markets skittish.
This report is excerpted from the Permanent Employment Charts page - More charts!
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.
Following discussion updated 12/27/12. Charts updated 5/31/13.
Under the current QE regime, the Fed’s balance sheet will grow by a 38% annual rate this year sending lots of cash through the market, with some of it trickling into the economy for the duration of the program. This is unlike 2011 when the market became extended relative to the unemployment claims trend. Then, the Fed was simultaneously ending QE2, thus starving the monster of its lifeblood. As a result, the market pulled back sharply after reaching the top of the channel. This year, the Fed is intent on fattening the calf. That would allow the S&P to bump along the top of the channel as long as the jobs trend stays intact. However, any breakout in stock prices without a complimentary acceleration in the the improving trend of claims would lead to a dangerous over-extension in stock prices.
Some bubble jobs will likely be created as the Fed pumps a net of $85 billion per month into the financial markets. However, the inflation that should accompany the money printing, whether in asset prices, commodities, or in consumer prices, should eventually force the Fed to stop QE. At that point the markets and economy will deal with the hangover from the program.
The SA data has been out of whack with the actual NSA data off and on throughout 2012. For most of the the SA data was trending flatter than the NSA data, understating the degree of improvement in the trend. It has not been unusual over the past couple of years for the SA trend to be wrong. It’s just the nature of the beast.
Note: The following chart is a picture of reality versus the the Impressionist art of seasonal adjustments. Sometimes the SA data represents reality to some degree, and sometimes it doesn’t. If you are following only The SA data, at any given time you have no way of knowing which it is. One thing is certain– it is not photo-realism.
There are ways to measure trends using actual data. One way is to show the year to year line as of the current and corresponding date, as shown on the chart below. Another is to view the annual rate of change as shown in the chart above.
As the number of workers eligible for unemployment compensation has trended up since 2009, the percentage of workers filing first time claims has continued to decline. Comparing the yearly line for the current week to the 52 week moving average, the trend of improvement has tracked steadily with rare exceptions.
Lately, economists have been arguing about the “natural” unemployment rate. I think we’re at it now. If we recognize that the bubble period with its millions of fake jobs was abnormal, then the low level of claims during 2006 and 2007 was also abnormal. Where we are today is probably normal and the expectation that the US will ever get back to 6% or 5.5% unemployment, without the context of another massive, destabilizing bubble is a false hope.
The chart below gives a longer term perspective on claims. The trend has been improving while remaining above the bubble years with their 10 million fake jobs taking orders for new and unneeded condos and houses, building them, permitting and inspecting them, and taking and processing mortgage applications.
The punditry consensus estimate was off the mark far more often than it is correct. Economists are surprised so often because they are looking at bad data–the SA data. Seasonal adjustment factors for a given week often have a range of variance of 5-10%.
The arbitrary seasonal adjustment process has often raised false alarms.There were big counter trend pops early in the second half of 2010 and in the second quarter last year. In the July 7, 2012 week it gave a false positive reading, which economists furiously tried to explain away with some nonsense about auto plant shutdown timing, when the explanation was far more mundane. The SA data was just wrong.
The trend of the SA data often goes off track for months at a time, giving a false picture. That was the case for most of 2012. The trend of the SA data was flat from February through September 15 , implying that the trend was not improving while the actual trend has continued trending down (improving). First time claims were actually doing better than the impression given by the trend of the SA data, which is why economists have been constantly confused.
The nonsensical SA numbers must realign with the trend eventually.When that happens the SA numbers overstate the rate of improvement, which is just as misleading as understating the improvement from March to October of 2012. The SA data is in a constant state of course correction as it attempts to mimic the real trend. It’s no wonder everyone is so confused about employment data. (False Claims and Absurdities of Mainstream Media Reports On Initial Unemployment Claims).
Even though the actual data did not warrant more Fed Quantitative Easing , i.e. money printing, in September 2012, as economists and Wall Street become increasingly confused by the bad data, the drumbeat for it grew louder and more persistent. Bernanke heard the sound of those drums and sang his song to them but more QE was not not needed and was not justified. Still confused about the rate of improvement and about what is possible without creating massive bubbles, the Fed doubled down on its mistake at the December 12 FOMC meeting.
A 19 month long trend of straight line jobs growth has made forecasting easy but, amazingly, most economists still get it wrong. At the same time, the Fed’s efforts to stimulate faster job growth by printing more money have been absolutely futile. The Fed’s solution therefore will be to do more of the same. Economists and central bankers are nothing if not stubborn.
The BLS today reported a seasonally adjusted (SA) gain of 175,000 in May nonfarm payrolls, slightly beating the consensus estimates of 159,000 to 169,000 from surveys of economists by mainstream media organizations. The report was in line with my expectation that the number would be at least as good as the trend.
The stock market’s initial reaction was strongly positive. The bond market’s was strongly negative. Gold was getting crushed. As usual, none of that makes any sense, rationally. By the same token, thinking that the markets should be rational is irrational. As of this writing the usual re-think hadn’t yet begun. I don’t expect an outbreak of rationality.
Unlike prior months, revisions to March and April data were small. The release for April had reported large revisions for previous months. The current report reflected a year to year gain in payrolls of 1.6% which was inconsistent with an adjusted 2.5% year to year gain in withholding taxes, so there should be an upward revision to payrolls next month. Nobody cares about that. They only care about this first guesstimate, which the BLS tells us has a margin of error of +/- 90,000. If you believe the withholding data, the number should have been closer to a gain of 265,000.
The SA headline number compares with a gain of 885,000 in the actual, not seasonally adjusted number (NSA). Since this number is not seasonally finagled we must look at past years to judge whether it’s good, so-so, or lousy. Last year the May NSA gain was 813,000 . In 2011, it was, 684,000. The 10 year average increase for May from 2003 to 2012 was 767,000, pulled down by an extremely weak year in 2009. Excluding 2009, the average was 822,000. This year stacks up well by all accounts.
The NSA number is not massaged to represent an idealized curve with seasonal tendencies filtered out. The actual data was again smack on the trend of the past year. One media outlet reported that a large number of economists surveyed had gotten the number correct. They have apparently mastered the arcane art of straight line trend extrapolation. The number of jobs has been growing at virtually the same rate for the past 19 months, around 1.5-1.6% per year, give or take a tenth. QE 3-4, which was announced in September 2012, with the cash flow starting in November, has not changed the growth rate one iota.
If we extrapolate 1.6% jobs growth against 1% population growth, we could theoretically calculate the point in time that the unemployment rate would fall to the Fed’s target of 6.5%. However, the government says that the size of the labor force rose in May and that the unemployment rate went up, so there goes that theory. As long as they can massage the data that way, the unemployment rate will never reach the target and the Fed can keep jamming the Primary Dealer accounts with QE cash until the cows come home.
While normally that would cause me to be eternally bullish, we’ve recently seen that Japan’s madcap money printing has been accompanied by huge selloffs in the JGB and Nikkei. Apparently the banks have putting the cash they’re getting from the BoJ into US equities. This raises the possibility that someday the dealers will find other places to redeploy the cash they get from the Fed, like, say, gold, oil, wheat, and beans?
Central banks cannot cause economic growth to track the inflation of financial asset prices. In that respect I believe that they are absolutely doomed to failure. If their only solution to this failure to stimulate more economic growth is to print more money, then god knows where this is headed.
The only thing they’ve accomplished so far is the promulgation of asset bubbles, in particular US stocks and housing. They’ve had a run of good luck in suppressing reported consumer price inflation. I do not know how long they can be successful at that.
The numbers above come from the BLS the Current Employment Statistics Survey or CES, a survey of business establishments. The BLS also does a survey of households. The household survey or CPS — Current Population Survey– sometimes tells a different story from the establishment survey. It’s also important in that it breaks out full time employment from total employment so that we can analyze that important metric separately
The BLS also does a survey of households. The household survey or CPS — Current Population Survey– sometimes tells a different story from the establishment survey. It’s also important in that it breaks out full time employment from total employment so that we can analyze that important metric separately.
The actual NSA (not seasonally adjusted) number of persons reported in the CPS as employed in May rose by 708,000 from April. Over the previous 10 years, with the exception of 2009, May has always shown an increase. The average increase over that period, excluding the recession year of 2009 was 445,000. Last year the increase was 732,000. This year’s May gain was second to only last year over the past 11 years.
The year over year gain in total employment under the CPS was 1.2% which was the same as in April and up from 0.9% in March. The annual growth rate has decelerated from 2.2% last October. The growth rates were actually stronger before the Fed restarted pumping money into the economy in November, when it settled its first MBS purchases in QE3.
Full time employment in the CPS rose by 969,000 in May, which is always an up month for full time jobs. This year’s gain was better than last year’s 635,000 and better than the average gain of 756,000. The annual gain was 1.8%, which is better than a trough of 0.8% set in March, but still below the 2.4% rate when QE3 was announced in September and 2.1% when the cash started hitting the system in November.
As for whether the fecal cliff and secastration have had a negative impact, the answer is no. The current annual gain of 1.8% in full time jobs is exactly the same as in December and January before the fecal cliff took effect. The Keynesian complaint that the fecal cliff has slowed jobs growth isn’t supported by the data. It also does not appear that the Obamacare employment rules that require full time workers to have coverage has had a lasting material impact. The hysteria and paranoia surrounding government policy notwithstanding, the US economy is so big and slow moving that these niggling policy changes at the margin have virtually no impact.
The chart above gives some perspective on how far total employment and full time employment fell in the first stage of the 2008-09 depression, and how much they have yet to recover.
With QE3 in late 2012, the Fed began adding more fuel to an engine that was running at its natural capacity. Job growth has not accelerated in response to the flood of money printing. While house prices and stock prices are rapidly inflating thanks to too many dollars chasing too few assets, job growth has been tepid. The Fed is blowing massive asset bubbles while the economy plods along at the a growth rate little different from when it was in a long pause in QE in 2011 and 2012. Money printing works to inflate asset prices, but it does nothing to stimulate job growth.
The chart below shows that while the number of jobs is growing, the full time employment to population ratio has barely budged since the recovery began in 2009. The economy seems to barely be keeping pace with population growth. The full time employment to population ratio bottomed at 46% in January 2010, and it’s at 47.5% today. That compares with 47.1% a year ago. While there’s been some year to year improvement in the past 12 months, this ratio is still at levels last seen in 1982 and 1983 at the bottom of a horrible recession.
The number of unemployed persons is growing right along with the number of people who do have jobs. It is a sad state of affairs for the US, but markets don’t care about that. They respond to the amount of cash in securities dealer accounts, which, thanks to the Fed (and lately the BoJ), continues to grow. As long as the Fed continues to pump money into the markets, I doubt that slow employment growth will matter much. In fact, most will see it as an excuse for the Fed to continue blowing a bubble.
Updated June 7, 2013.
Average hourly earnings rose by 2% on a yearly basis in May, up from 1.9% in March and 1.2% in April. The rate of increase has fluctuated from 1% to 2.9% since 2010, averaging around 2%.
Average weekly earnings also showed a 2% gain year to year. In May 2012, the annual rate of gain had hit 4.1%. The 12 month moving average has dropped from around 3% in 2011 to around 2% now.
QE isn’t boosting the number of full time jobs and it’s not boosting compensation. What about hours worked? Average hours worked came in at 34.3 in April, down from 34.7 a year ago. While hourly pay growth weakens, total average weekly pay weakens even more because employers are cutting worker hours and shifting more workers from full-time to part time.
Why isn’t all the new money which the Fed is pumping into the system causing job growth or wage growth? Many of the unemployed do not possess the skills that are in demand in the market. Or they are overskilled. All of the growth is in near minimum wage, low skilled service work. The call of, ”Welcome to Burger King may I have your order please,” echoes throughout the land.
Economic pundits and FOMC policy makers must realize that the 10 million fake jobs spawned by the bubble are not coming back, which is why the Fed is trying to spawn new bubbles, hoping for the bubble jobs they create.
The 7.6% unemployment rate is probably “normal.” The bubble unemployment rate of 5.5% was abnormal. If the goal is to continue QE until the unemployment rate hits a target of 6.5%, then the policy is simply a matter of fomenting the next bubble to generate millions of fake jobs. The problem with that is that as bubbles grow and the economy overheats, inflation will eventually force the Fed to stop printing, and all the new fake jobs will once again disappear. While we have asset inflation, that’s fine with the Fed. Consumer price inflation hasn’t shown up in the conventional measures that the Fed watches, but then neither have the good jobs, so in spite of the fact that there’s no evidence that it increases jobs or wages, the money printing will go on.
Updated Jnauary 10, 2013 The job openings data is a little more delayed than other employment data, but it has the advantage of being a leading indicator. Changes in the trend of job openings tend to lead changes in total nonfarm payrolls trends by several months. On this score, the uptrend in jobs does not appear to be in any jeopardy in the months ahead.
I am concerned only with the not seasonally adjusted data, depicting the trend by showing both a 12 month moving average and the lines connecting the current month each year, as well as the months in which the annual highs and lows typically occur. That gives a much clearer and more accurate picture than seasonal smoothing as it shows both the actual current position of the number within the bigger picture trends. The current level of this series is completely consistent with the trend growth over the past year.
November is always the weakest month. This year was no exception. On a month to month basis, November was down 686,000. That was better than the November 2011 drop of 747,000, but slightly worse than the prior 10 year average of a drop of 649,000.
The current data shows a year to year gain of 11.5%. This was better than the October year over year gain of 7.5% and much better than September’s 1.1% but a little light of the the average gain for the past year of 14.3%. Current levels are back to 2004 levels when the economy was beginning the last leg of the housing bubble. From then through the first half of 2007 the numbers included millions of fake jobs created by the bubble.
Like so many other data series in this class, this “recovery” is still just a cyclical bounce in a secular downtrend until proven otherwise, but there’s no sign of a rollover or any real slowing of growth in this data. Here’s the full government report. The BLS also publishes a series of interesting charts.
JOLTS led the stock market downturn of 2007-08, but trailed the market at the last two bottoms. Trickle down of Fed policy seems to work to some extent, but at the top, apparently investors are no longer paying attention to the real economy. That can go on for months.
Updated October 1, 2012 More timely updates of this data are posted in the Professional Edition weekly Treasury updates.
This chart compares current withholding tax collections with last year on the same date. This year has been running ahead of last year in nominal terms.
Note: As a result of the 4% year to year gain in average weekly earnings reported by the BLS on October 5, real rate of gain will be adjusted down from the rates quoted below, accordingly. As of October 2, the new rate of gain in the 4 week average is 3.4%.
In real terms, the year to year gain in withholding taxes dropped from the 3-4% range in mid July to less than 2% in August. It then rebounded to a gain of nearly 4.5% in September. The BLS jobs data is based on payrolls for the week including the 12th day of the month. During that week, the real year to year increase in withholding taxes was 5.2%. However, that number is subject to the change in average hourly and weekly earnings for the period which is released at the same time. This estimate is based on the adjustment for last month. If wage and salary increases have changed by even a small amount, that would have a significant effect on the real rate of change in withholding.
Obviously we won’t see a year to year jobs gain of 5.2%, but if the BLS numbers are anywhere near to reality, which is certainly not guaranteed, then the jobs number should handily beat economists’ downbeat consensus expectations for September.
These 2 charts are updated and analyzed weekly in the Professional Edition Treasury update.
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