Every week the US Department of Labor and Birth/Death Adjustments dutifully reports two sets of numbers on first time and continuing unemployment claims. One set is the actual number of people filing claims as tabulated by the 50 states. The other is a fictionalized number which purports to smooth out the seasonal variances so that the trend can be represented more clearly. One number is real. The other is fake, but is like a work of abstract impressionaism. It represents the statistician’s impression of reality, and for some people that works. Hey, beauty is in the eye of the beholder. I like photo realism myself.
Most of the time the fake seasonal numbers paint a pretty picture more or less representing the trend. The problem is that it makes it impossible to see how the rate of job loss is really doing in real time. For that we need to look at the actual snapshot photo and compare it with past such photos. That way it’s possible to quickly determine whether the picture is getting better, worse, or about the same as past periods.
Using the seasonally massaged data, that’s not possible. That becomes critical at real turning points when the seasonal data, like any smoothed data, is likely to obscure or lag the turn for months. We don’t look at just moving averages of stock prices when we turn on our computer screens in the morning. We look at the actual prices, and the actual price patterns, and then maybe the moving averages. It should be the same with any economic data. The actual patterns are absolutely critical to our comprehension.
While the Federal Gummit dutifully reports both sets of numbers, the mainstream financial media dutifully reports just the fake numbers. Their view is that reality is just too complicated. So they give us a cartoon instead. In today’s cartoons they reported that initial claims dropped to 390,000 last week from an upwardly revised 400,000 the week before. How pretty!
The media was pretty excited about that. Marketwretch blared that claims reached the lowest level in 7 months. What it really meant was that the seasonally adjusted cartoon drawing reached the lowest level in 7 months. Rhoiders said “New U.S. claims for jobless benefits fell last week to their lowest level since early April.” Hizzoner The Mayor’s (Bloomberg) news services also shouted out that claims were at their lowest level in 7 months.
Purely by accident, the real number this week wasn’t too far off at 398,753, but that was an increase from last week’s 369,647, not a decline as shown in the cartoon numbers. Furthermore it was about 70,000 more than at the seasonal low reached the last week of September. While this year’s seasonal low was lower than last year, and this year’s increase since then was less than last year’s, how that led to the proclamation that this week’s number was the lowest in 7 months is beyond my comprehension. It’s just a meaningless, and false, number spit out by a statistical Al Gore rhythm. In this case it’s harmless, because even though the number actually increased this week, rather than declined as in the reports, the trend of the actual data is moving in a constructive direction. At other times, however, such statistical renderings can be grossly misleading.
So while I’m sure Renoir could have shown the statisticians a thing or two, as Impressionism goes, this week’s report wasn’t bad. It was a case where statistical impressionism gave a fair rendering of reality.
Looking at the actual numbers, the week to week increase of 29,106 was the best first week of November in the last 5 years, just beating out last year when the week to week increase was 30,750. Last year at this time just about everyone thought that the economy was in a boffo recovery. So the number this year is good, relatively speaking, but not so good relative to “normal” economic periods.
Looking at the last 2 weeks the numbers are less positive. The two week change was an increase of 21,597. Last year there was a big drop in this 2 week window. This year was better than 2009 and 2008 when the economy was cratering, but not as good as 2007 when the recession was just starting.
A number that’s rarely reported in the mainstream media raises another yellow flag. The total number of claims, including both regular state claims and federal extended benefits and emergency benefit programs, has been in a declining trend since January 2010. Part of that is because some people have been getting jobs, but part of it is because some people are exhausting benefits. We can’t know how many are in each category. Total continuing claims, including both state and Federal programs, rose by 156,761 in the 2 weeks ending October 22. About 90,000 of that included people exhausting state benefits and moving into the extended benefits programs.
This is a number that bears watching. There were increases in this number last year in the fourth quarter. The question going forward is whether the numbers are better or worse than last year. So far this year total claims have dropped by 2.8 million since the peak at the beginning of the year. Last year the decline over the same period was 3.3 million. That suggests a slowing in the momentum of improvement this year versus 2010. A further slowing in the rate of change would not be good. An actual increase in the total number of claims would be a sure sign that the economy is weakening.
First time claims normally remain in a range in November, then start to increase sharply in December. In the weeks ahead we’ll want to keep an eye on whether first time claims remain generally stable, which would suggest a status quo economy, or whether they begin to increase more than they did last November. That would suggest economic weakening.
For now, even though the trend continues to show gradual improvement, the overall level is still well above 2007 when the depression began. While job losses have been slowing, they are still too high to indicate recovery. By this measure, the economy may not be getting worse, but it’s not improving either.
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