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Here’s Why Initial Claims Show That This Time Really Is Different

Initial claims for unemployment compensation extended the string of record lows into its 22nd month this week. The mainstream media is reporting this as if the record low is something new. That’s because they look at the seasonally adjusted (SA) fictitious data only. The actual, not seasonally finagled number has been at a record low relative to total employment since September 2013.

However, it is remarkable that the SA total is at its lowest level since 1973, when the work force was far smaller than today. The current numbers are well beyond the bubble record lows of 1999-2000 and 2006-07. The implication is that this time really is different. It is the bubble to end all bubbles.

The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 255,000. The Wall Street economist crowd consensus guess was too high at 279,000. They had merely shaved a few hairs off the tail on the donkey of the previous week’s number of 281,000.

The stock market sold off on the correct expectation that the data would encourage the Fed to engage in the game of interest rate raising charade sooner rather than later. This isn’t news to us, since the hard, unmanipulated economic data we track has never deviated from the slow growth trend it has been on for the past couple of years. The Fed knows that, but the mainstream media headline writers and press release repeaters, along with the investing public, are constantly whipsawed by the month to month, often misleading or outright wrong squiggles in the fictional SA data.

Permit me to get on my anti-seasonal adjustment soapbox for a moment. The seasonal adjustment factor applied this week is just silly, so I can’t blame the Wall Street crowd for being so far off the mark in its current guess. Their guess was probably more correct than the official number.

Here’s why. The factor applied this week was 0.965. This week of July is always a week where actual claims filed are extremely low and down sharply from the prior week. Why would the DoL further reduce the number by using a factor of less than 1.0? In fact, the factors applied for the comparable week from 2012 to 2014 were 1.07, 1.03, and 1.01. These numbers are based on an arbitrary statistical formula, but at least those factors make some sense. Reducing the weekly number for this week by applying a factor of 0.965 does not. In reality, the actual number of claims filed this week was perfectly consistent with the trend which claims have been on. There should have been no “surprise” here.

Instead of the seasonally manipulated headline number expectations game, we focus on the trend of the actual data. Facts are much more useful than the Wall Street captured media’s fantasy numbers. Actual claims based on the actual state by state filings reported to the Department of Labor (DoL) were 262,981, which is another record low for this calendar week, continuing a nearly uninterrupted string of record lows that began in September 2013. There’s just no news here, no big surprise.

Employers in some sectors are hoarding workers. Similar behavior in the past has been associated with bubbles, and has led to massive retrenchment, usually within 18 months or so. In the housing bubble, similar behavior continued well beyond the peak of that bubble in 2005-06. Employers seem to take their cues from stock prices. The current string is now 4 months beyond the point at which other major bubbles have begun to deflate. Based on the fact that previous records were attained at and for some time after the peaks of massive bubbles, by that standard, the current financial engineering, central bank bubble finance bubble, aka “bubble bubble”, is the bubble to end all bubbles, Bubbie!

The DoL reports the unmanipulated numbers that state unemployment offices actually count and report to the DoL each week. This week it said, “The advance number of actual initial claims under state programs, unadjusted, totaled 262,981 in the week ending July 18, a decrease of 81,382 (or -23.6 percent) from the previous week. The seasonal factors had expected a decrease of 54,210 (or -15.7 percent) from the previous week. There were 287,049 initial claims in the comparable week in 2014. ”

Initial Claims and Annual Rate of Change- Click to enlarge
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Claims virtually always fall sharply during this week of July. We need to know how the current week compares with this week in prior years, and whether there’s any sign of trend change. In fact, the decline last week was only the 4th largest for this week in the last 10 years. The actual change for the current week was a decrease of -81,000 (rounded). The decline for the same week last year was -83,000, and in 2013 -71,000.

Week to week changes are noisy. The important thing is the trend and it remains on track. Actual claims were 8.1% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. This week’s data was on the weak side of that range for a third straight week. These slightly weaker readings followed an unusual degree of strength that had persisted for 2 months in May and June. The last 3 weeks have probably been a little payback for that strength. There’s no sign yet of a significant uptick in the trend of firings and layoffs.

There were 1,841 claims per million of nonfarm payroll employees in the current week. This was a record low for that week of July, well below the 2007 previous record of 2,190. The 2007 extreme occurred just a  few months before the carnage of mass layoffs that was to begin later that year. Employers were still clueless that the end of the housing bubble would have devastating effects. If they were clueless then, they are in an advanced state of delirium and delusion now.

As a result of the fact that employers apparently tend to take their cues from stock prices, we cannot depend on this data for advance warning of a decline in stock prices, although there should at least be concurrent confirmation. So far, we’re not seeing any signs of that.

Initial Claims and Stock Prices- Click to enlarge
Initial Claims and Stock Prices- Click to enlarge
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I look at an analysis of individual state claims as a kind of advance decline line for confirmation of the trend in the total numbers. 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, Louisiana, and Oklahoma, since the beginning of 2015 claims have been consistently above year ago levels. North Dakota and Louisiana claims first increased above the year ago level in November of last year. Texas reversed in late January. Oklahoma joined the wake shortly after that.

Data for the July 18 week:


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Claims increased sharply in these oil states last week. The numbers have varied widely week to week but the trend of claims being significantly higher than the same week last year has been persistent. Texas, with a huge and more diversified economy improved in the second quarter as the price of oil rebounded and stabilized, but that improvement was temporary, and new claims in Texas have been climbing in July.

In the July 18 week, 11 states had more claims than in the same week in 2014. That was down from 17, last week. This number fluctuates widely week to week with many states near even. At the end of the third quarter of 2014 just 5 states showed an increase in claims year to year. At the end of 2014 that had increased to 8. In early April this year the number had risen to 22. The trend has moderated as the oil collapse has leveled off.

The 22 states that were higher in early April gives us a benchmark to watch, similar to an advance decline line in the stock market. If the number of states showing a year to year increase in claims should exceed 22, it should be an indication that the national trend of decreasing claims is reversing. That could be an advance warning of a big stock market decline as well.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Pro- Federal Cash Flows report. The year to year growth rate in withholding taxes in real time is now running +2.9% in nominal terms. Over the past week the growth rate has dropped sharply after being remarkably consistent around +5-6% since April.

Is this the first real sign of a weakening economy in the withholding data, or part of the normal cyclical swing pattern in this data? Stay tuned! The next few weeks should be interesting.

The following is reposted from prior reports for the benefit of new visitors.

The July 12 week was the reference week for the July payrolls survey. The numbers for that week were weaker than the June numbers, suggesting that Wall Street economists are likely to find their estimates for July are too high. Whether the cockamamie seasonally adjusted headline number reflects that reality or not is a crapshoot. It takes the BLS 7 revisions of the SA data over 5 years to fit it to the actual trend. The first release is hit or miss. But even if the number comes in below expectations, it probably will not influence the Fed, which remains hellbent on trying to get rates up sooner rather than later.

The Fed’s favored measure of inflation, PCE, suppresses the measurement of inflation even more than the just released CPI. If the Fed believed this data, it would be even further behind the curve in recognizing that inflation is running much hotter than the official measures show than it is. The Fed knows that, and has inserted weasel words into its various propaganda releases that it will raise rates as long as the Fed thinks that inflation is moving toward the 2% target. It does not actually need to be at the target. The Fed is prepared to ignore the official measures because the members realize that they’re bogus.

The Fed will use or ignore whatever stats it wants depending on whether they fit its preconceived narrative, which is “We’re gonna try to raise rates at least once this year, and if that doesn’t work, we’ll think of an excuse not to do it again, because raising rates is really data dependant depending on which data dependably supports our narrative, and which data we will ignore, because it all depends on dependably dependant official data, none of which is dependable.”

The actual claims data, and actual withholding data, show the financial engineering bubble economy is still at full boil. This will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later, but only because they have conditioned the market to expect it, a conditioning that they now regret they had undertaken. So now the Fed is saying, “just once and then we’ll see.” They’re walking back expectations now because they know they will have problems getting rates to go up. I cover that subject in depth in the weekly Money-Liquidity Pro reports.

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