Extremely low initial unemployment claims have an ominous track record. Record low claims suggest a distorted, overheated, bubble top economy. On both occasions in this century when claims have reached a similar percentage of total nonfarm payrolls at this time of year, the stock market has subsequently collapsed within a few months.
The overheating that has been indicated in the claims data for months has begun showing up in other data, including today’s ISM Non Manufacturing survey, which reached a level last recorded in 2005 as the housing bubble was screaming toward a peak. The excesses and distortions are real in certain sectors of the economy, while others get left behind. In any bubble economy, when the sectors that are in the most extreme bubbles begin to weaken, it has been only a matter of time until the entire bubble driven economic house of cards collapses.
The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended August 30 was 302,000. That was just 2,000 more than the consensus guess of Wall Street economists. It was such a good guess that it rendered the Wall Street game of expectations versus announced data moot this week, especially given the much more important news out of the ECB, which announced that it would begin outright purchases of asset backed securities in October. That will undoubtedly lead to more asset inflation, but that’s another story.
In the big picture for unemployment claims, the actual, not seasonally finagled numbers, which the Wall Street captured media ignores, shows claims still near the levels reached at the top of the housing/credit bubble in 2006. That’s after nearly 12 months of nearly continuous record readings. Since September 2013 when the number of claims first fell to a record low, the data has suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.
Thanks to their focus on the made up seasonally adjusted (SA) numbers, news media press release repeaters have given little indication that by historical standards the numbers have represented a danger sign. They have recognized the record levels but the media echo chamber continues to present that as positive, rather than the danger sign that it is.
Here are the actual numbers, along with the data showing why those numbers are so troubling.
According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 248,570 in the week ending August 30, a decrease of 317 (or -0.1 percent) from the previous week. The seasonal factors had expected a decrease of 3,581 (or -1.4 percent) from the previous week. There were 269,359 initial claims in the comparable week in 2013. ”
Actual initial unemployment claims were 7.7% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between approximately -5% and -15%. The current number is centered within trend norms. There are no signs of weakening yet.
The actual week to week change last week was a decrease of just a few hundred, which is less than a rounding error. A small drop is normal for the last week of August. The average of the prior 10 years for that week was a decrease of -900.
New claims were 1,793 per million workers counted in July nonfarm payrolls. This compares with 1,851 per million in this week of 2007, which was when the housing bubble was on the verge of collapse, and 1,905 per million in the comparable week of 2006, around the top of the bubble. In September 2013, this figure set a record low. In each ensuing week the numbers remained at or near record levels.
With record readings having persisted for 12 months, the actual numbers have given us fair warning that the Fed sponsored financial engineering bubble may not have much longer before it too begins to deflate. The numbers persisted at extreme levels at the tops of the last two bubbles for a year before the collapses got rolling. The foundations were already beginning to crumble by the time the first anniversary of record readings rolled around. Based on those standards, time is not on the bulls’ side.
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