Beneath The Bubbly Numbers——Danger Ahead

The actual unmanipulated data on weekly first time unemployment claims paints a picture of a US economy that is in a bubble that is boiling over, driven by the massive central bank money printing campaigns and ZIRP.

The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 313,000. The Wall Street conomist consensus guess was 290,000.

Rather than playing the headline number expectations game, our interest is in the actual, unmanipulated data. Tracking the actual total of state weekly counts is the only way to be to see what’s really going on. The Department of Labor reports the actual unadjusted data clearly and illustrates it in comparison with the previous year. The mainstream financial media ignores that data.

According to the Department of Labor the actual, unmanipulated numbers were as follows. “The advance number of actual initial claims under state programs, unadjusted, totaled 280,000 in the week ending February 21, an increase of 2,096 (or 0.8 percent) from the previous week. The seasonal factors had expected a decrease of 25,110 (or -9.0 percent) from the previous week. There were 312,665 initial claims in the comparable week in 2014. ”

Initial Claims and Annual Rate of Change- Click to enlarge

This year’s performance was much weaker than average for that week of February. The actual week to week change was an increase of 2,000 (rounded). The 10 year average for that week is a decrease of -20,000 (rounded). This year’s decrease compared with a decrease of -19,000 in the comparable week of 2014, and -41,000 in that week of 2013. This suggests weakness in the short run, but what about the bigger picture?

Looking at the momentum of change over the longer term, actual first time claims were 10.5% lower than the same week a year ago. This is right in the middle of the normal range of the annual rate of change. Since 2010 the change rate has mostly fluctuated between -5% and -15%. There is no sign of the trend weakening yet.

Employers are hoarding workers. Businesses have been unusually reluctant to cut employees. The total number of claims was the lowest for that week since the top of the housing bubble. While the current total was about 1,000 more than the 2006 week, initial claims are still at all time record lows in terms of the number of claims per million workers at 1,988. This is 7% lower than at the top of the housing bubble and 15% below the top of the tech/internet bubble. For months, the current numbers have been so extreme that they suggest the excessive employer optimism that characterizes the end stages of economic booms and bubbles.This is the most extreme such behavior in the history of this data.

This come on the heels of the long running US oil/gas bubble, which peaked in the middle of last year and has since collapsed. The impact of that price collapse is starting to show up in state claims data.

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, unlike most states, claims have recently been above year ago levels. North Dakota claims first increased above the year ago level in early November. Louisiana reversed in mid November. Texas reversed in late January. In the most current state data, for the February 14 week, claims in these states were well above year ago levels. Texas was up 16%, Louisiana +27%, and North Dakota +41%. These increases are probably just the tip of the iceberg, with more layoffs and ripple effects to come.

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.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Professional Edition.  The growth rate of withholding taxes is now running at an annual rate of gain of about 5.5% in real terms, adjusted for the trend rate of increase in workers’ weekly incomes. This is a record growth rate relative to the past dozen years. It too has the feel of an economy that has reached the boiling point.

The big actors in the economy are partying like it’s 1999. The tech bubble topped out in 2000 and the recession followed. The housing bubble peaked in 2006, but the damage did not begin to scare businessmen, policy makers,Wall Street and mainstream pundits until late 2007, and the real collapse followed a year later. The clock is ticking toward a similar end today, and this time the central banks will be hard pressed to engineer another credit bubble recovery.  

While we have been teased with signs of change in the claims data from time to time, the trend is still in force. This data will encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later.

Claims and Stock Prices- Click to enlarge