Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

Troubling Increase in Initial Unemployment Claims A Bad Omen For Stock Prices

For the first time in 2014, initial unemployment claims were higher than the same week a year ago. The difference was slight, but just the fact that they were not lower than last year is troubling because it suggests that the improving trend may be losing steam.

The seasonally adjusted headline number for initial unemployment claims came in above consensus expectations at 348,000 for the week ended February 22. Wall Street economists had guesstimated 335,000. Actual filings totaled 310,816 (see Note below) which was up 0.1% from the same week a year ago. This was near the top end of the range year to year change over the past 4 years. In addition, the short term trend since the beginning of the year has been toward less favorable comparisons.

Liquidity moves markets!

Follow the money. Find the profits! 

The Fed’s timing on changing policy is, as usual, impeccable. It is declaring victory and going home just as its abject defeat on the efficacy of QE in increasing employment may be about to become apparent.

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge

The DOL reported that “The advance number of actual initial claims under state programs, unadjusted, totaled 310,816 in the week ending February 22, a decrease of 10,598 from the previous week. There were 310,389 initial claims in the comparable week in 2013.”The year over year increase of 0.1% was the second time in 3 weeks that the annual rate of change was less than 1%. The central tendency of the trend over the previous 3 years had been around -10%. Since the second week of this year the decline has never been greater than 8.6%.The week to week decrease of -10,598 was less than the drop of 40,637 for this week of February last year. It was also worse than the 10 year average of a decline of -15,352 for the same week. One bad week does not a trend make, but this has been trending the wrong way for six weeks now.  

Initial Claims and Stock Prices - Click to enlarge

Initial Claims and Stock Prices – Click to enlarge

Stock prices and initial unemployment claims have historically had a strong inverse correlation. A negative divergence developed in the final burst of the last bubble in 2007, with the trend of claims stalling from 2006 through 2007 while stock prices entered their final blowoff. The flat year to year trend in claims could mean that the trend is moving in the direction of developing a negative divergence versus stock prices. At the very least, it’s clear that stocks have “bubbled off” over the past 15 months. If the improvement in initial jobless claims stops, it would suggest that that the institutional mania for equities is in its final stages. 

Note: The headline number is a seasonally adjusted, fictional number. The Department of Labor also reports the actual number of filings which the 50 states count and send to it weekly, absent a few interstate claims which show up in the following weekly revision of the advance figure released each week for the week before. Those upward revisions are usually in the 1,000 to 4,000 range, which isn’t material in the big picture, but in this case it will make a bad number even worse, perhaps turning the year to year trend negative.

Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money-Liquidity Package. Get the facts! Click this link and begin your risk free trial. Get the technical outlook for the market in the Professional Edition Daily Market Updates.

See Rick Santelli use one of my proprietary charts on CNBC to explain how the Fed impacts the stock market directly through its trades with the Primary Dealers. This is just one example of the dozens of proprietary charts that I build that will help you to clearly see and understand the market’s trend, and when that trend is beginning to change.

Follow my comments on the markets and economy in real time @Lee_Adler on Twitter!




Try Lee Adler's Technical Trader risk free for 90 days! Follow the money. Find the profits!

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? 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. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.