The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 262,000, smashing the Wall Street conomist crowd consensus guess of 290,000. This finally called attention to the fact that claims have been at or near record lows for the past 19 months. But financial journalists make no effort to check the actual numbers and they have not been aware of the record lows due to their reliance exclusively on abstract impressionist, seasonally adjusted data. Behind the headline numbers, claims have been making record lows, below the lowest levels reached at the top of the housing bubble, in most weeks since September 2013.
Meanwhile, the number of states reporting a trend of increasing claims has been growing. That fact and the financial media headline writers sudden revelation that claims are at record lows could mean that the days of those record low national readings are approaching an end.
Most people are aware that the big problem is that the vast majority of new jobs are low wage jobs. Employers are retaining workers in high skill occupations like financial rocket scientists, and pharmaceutical TV commercial copywriters, where they cannot find workers with the needed skills.
The Department of Labor also reports actual, unmanipulated numbers. This week it said, “The advance number of actual initial claims under state programs, unadjusted, totaled 250,815 in the week ending April 25, a decrease of 28,982 (or -10.4 percent) from the previous week. The seasonal factors had expected an increase of 3,253 (or 1.2 percent) from the previous week. There were 318,127 initial claims in the comparable week in 2014. ”
If you have been around this website much, you have heard this before, so I apologize for repeating it. But this is a perfect opportunity to make the point that the “seasonal factors” really are pretty stupid sometimes. The fictitious numbers they produce are misleading often enough to render the whole concept of seasonally adjusted data virtually useless if you are interested in seeing when the trend is beginning to turn. The SA data rings fall alarms seemingly with every other release. The media uses SAdata to the exclusion of actual data because that’s what it has always done and because it’s what “everybody” else does. There’s no other reason for it.
Meanwhile readers of a few publications like this one are well aware that claims have been stretched to record lows for a long time.
In terms of the trend over the longer term, actual claims were 21.1% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%, with just a few times between -20% and -25%, mostly in the past 6 months. The current number is within that outlying group. In each case previously this was sharply reversed in ensuing weeks, but the usual range of change has stayed intact. There’s no sign of trend change.
On the basis of the week to week change it was a much stronger than normal reading for this week of April. This week is a swing week with both up and down weeks in the prior 10 years. The actual decline of 29,000 (rounded) compared with the 10 year average decrease for that week of 1,000 (rounded). Claims increased by 20,000 in the comparable week last year. Perhaps tellingly, the strongest 4th week of April of the past 10 years was in 2007, a few months before the onset of mass layoffs tied to the housing crash and financial crisis.
There were 1,787 claims per million of nonfarm payroll employees in the current week. This was a record low, below the April 2007 level of 1,965 record low for the last week of April, which occurred well after the peak of the housing bubble but before the carnage of mass layoffs that was to begin later that year.
At the last bubble peak in 2006, claims began to increase late in that year. The housing bubble had already peaked a few months earlier but the stock market continued on its merry way for 9 more months, not finally ending its run until September 2007. A clear breakout in the number of claims toward the end of 2006 gave plenty of advance warning that all was not well, before stock investors got a clue. Conversely, at the 2000 top, claims had given little advance warning. They began to break out concurrently with the top in stock prices through midyear 2000. We cannot know in the current case whether claims will begin to weaken before stock prices turn down, but it should at least be concurrent with the turn in stock prices. Whether it is a leading indicator or not, it is still worth watching for any signs of change.
We have noted before in these updates that the oil price collapse may be analogous to the housing bubble peak in 2006.
The impact of the oil price collapse started to show up in state claims data in the November-January period. While most states show the level of initial claims well below the levels of a year ago, in the oil producing states of Texas, North Dakota, and Louisiana, claims have been above year ago levels since the turn of the year. North Dakota and Louisiana claims first increased above the year ago level in November. Texas reversed in late January. Another oil producing state, Oklahoma, joined the wake subsequently. In the most current state data, for the April 18 week, claims in these states were well above year ago levels. Texas was up 27% (vs. 17% in the previous week), Louisiana +43% (vs. +24%), and North Dakota +89% (vs. +69%). Oklahoma was up by 36% (vs. +27%).
With its huge and widely diversified economy, Texas could be the harbinger of things to come for the entire nation as the ripple effects of the oil collapse and the disappearance of those $85,000 per year jobs spread through the US economy.
In the April 18 week, 14 states had more claims than in the same week in 2014. That has down from 22 the prior week. This number fluctuates widely week to week with many states near even. But the trend is clear. At the end of 2014 only 8 were up year to year. At the end of the third quarter of 2014 there were just 5. This is akin to a stock market advance-decline line in a negative divergence from an advance in the market averages. It may be a warning sign of deterioration that is not apparent in the topline numbers.
I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Professional Edition. The year to year growth rate in withholding taxes in real time is running slightly above 5% in nominal terms. This is down from a peak of over 8% in February, but it remains a strong number that supports the likelihood of a solid gain in payrolls for April.
The claims data will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later.