First time unemployment claims put on their worst performance for this week of March in the past 17 years.
The Labor Department reported that the seasonally adjusted (SA) representation of first time claims for unemployment rose by 16,000 to 357,000 from a revised 341,000 (was 336,000) in the advance report for the week ended March 23, 2013. The last time this week showed an increase larger than that was the week ended March 23, 1996. Normally initial claims decline in this week of March.
Because the advance report does not include all interstate claims, it is usually revised up by from 1,000 to 4,000 in the following week. The current revision of +5,000 was larger than usual because this week’s number included the annual revision to the SA factors, used for claims since 2008! As the DOL put it, “The seasonal adjustment factors used for the UI Weekly Claims data from 2008 forward, along with the resulting seasonally adjusted values for initial claims and continuing claims, have been revised.”
Seasonally adjusted numbers are fictional and are not finalized until 5 years after the fact. The annual revisions are an attempt to accurately reflect what actually happened this week. The weekly numbers are worthless for comparative analytical purposes. I work with only the actual NSA data, which is final the week after the advance report. The revisions are minor and consistent, so it is easy to adjust for them. After the second week, they are never subsequently revised.
The consensus median economists’ estimate of 338,000 for the SA headline number was too low this week. Usually they are too pessimistic, but this week was an exception, possibly due to the seasonal adjustment chicanery. 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 simply don’t work or that they have a bias. For months it has appeared that a pessimism bias was built in to their estimates. This week went the other way. Was it because the number really was bad? I think so.
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 315,657 in the week ending March 23, an increase of 14,706 from the previous week. There were 323,373 initial claims in the comparable week in 2012.” [Added emphasis mine]
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.
For purposes of this analysis, I adjusted this week’s reported number up by 2,000, based on last week’s DOL revision to the NSA data. The adjusted number that I used in the data calculations and charts is 318,000, rounded. Next week the final number for this week will be released. It’s usually very close to my adjusted figure.
This year’s actual filings represented a decrease of 1.8% versus the referenced week last year. That’s slightly above the usual range of -3% to -20%, suggesting a slowing rate of improvement. That comes as no surprise because the year to year comparisons are now much tougher as the number of job losses, which had been declining sharply since 2009, begins to stabilize at a low level.
The current week to week change was an increase of 16,700 in the NSA number. That compares with an average decrease of 4,300 over the prior 10 years. The comparable week showed increases in only 3 of those 10 years, and two of those were the last two years. In 2012 there was an increase of 3,900 while in 2011 there was an increase of 3,000. The current week’s performance was worse than any of the last 10 years. This may be the first time bears really have a data point to hang their hats on, in this series.
While the fiscal cliff tax increases at the beginning of the year had no noticeable negative impact on the trend, the current number suggests that the Federal spending sequester that went into effect on March 1 is beginning to have an impact.
Since mid 2010 the annual rate of change in initial claims has ranged from -3% to -20% in virtually every week, with a couple of temporary minor exceptions, including the Superstorm Sandy surge. Since mid 2011 the annual rate of change was within a couple of percent of -10% in most weeks. The trend has been remarkably consistent. The data is now at the upper limit. Any move toward a year to year increase in claims would suggest a substantive slowing in the economy. We haven’t seen that yet in the real time withholding tax data, but we need to watch both that series and this one closely in the weeks ahead.
We had been expecting some moderation in the rate of improvement because further reductions in the number of new claims should be much more difficult to achieve as the year to year comparisons become tougher. I noted last week that that pattern may be starting. This week’s data supports that.
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 can be seen clearly when the claims trend is plotted on an inverse scale with stock prices on a normal scale, as shown below.
Stock prices have broken out of the top of their range channel, while initial claims have not. As a monetary/technical analyst, the only conclusion I would 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.
Stocks appear to be trending on a beeline for 1600 plus, while the initial claims claims trend, which had been improving at the same modest rate of the past two years, may now be slowing. As long as the trend of new claims doesn’t turn negative and the Fed keeps jamming cash into the accounts of Primary Dealers via its asset purchase programs (QE3-4) , the broad uptrend in stock prices should remain intact. But if the deterioration in claims persists, the rally’s days may be numbered. The issue may be whether the sequester is a one time hit to the trend, or something that shifts the longer term momentum. We should get some idea of which it is over the next few weeks.
[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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