DANGER! Initial Claims Per Million Workers Remain At Bubble Extremes

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the second week of June was 312,000. The consensus guess of Wall Street economists was 313,000. On the surface this seems benign, but the actual numbers which the Wall Street captured media ignores continue to show claims at the levels reached at the top of the housing/credit bubble in 2006. The current numbers suggest that the central bank driven financial engineering/credit bubble has reached a similarly dangerous juncture.

The headline number is seasonally adjusted, therefore fictional. It may or may not give an accurate impression of reality, depending on the week. The recent seasonally adjusted numbers, and the way the mainstream media reports the numbers, give little indication that by historical standards the numbers of firings and layoffs that lead to unemployment claims have been at record lows for several months. No one is ringing alarm bells about this. That’s standard practice in the media, but I haven’t even seen any independent bloggers raise this issue. Perhaps a year or two from now they will look back and say, “The economy was overheated, but nobody saw it,” except for those of us who pay attention to the actual data, not the seasonally adjusted diversion.

According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 300,193 in the week ending June 14, a decrease of 13,178 (or -4.2 percent) from the previous week. The seasonal factors had expected a decrease of 7,946 (or -2.5 percent) from the previous week. There were 336,970 initial claims in the comparable week in 2013.    - Department of Labor (DOL)

Initial Claims Near Record Lows – Click to enlarge

Actual initial unemployment claims were 10.9% lower than the same week a year ago. This is within the normal range of the annual rate of change the past 3.5 years, which has mostly fluctuated between -5% and -15%.

While most weeks typically tilt the same direction each year, claims in the second week of June have gone both ways. No clear pattern is evident. The actual week to week increase of -13,178 was stronger than the 10 year average for this week of +4500 and was also stronger than last year when claims rose by 4,000 during the comparable week. There’s no sign of any change of trend in these numbers. The latest iteration of the Fed driven serial bubble economies marches on.

New claims were 2,157 per million workers counted in May nonfarm payrolls. This compares with 2,155 per million in this week of June 2007 and 2,052 per million in June 2006, at the very top of the housing bubble. In May, this figure had hit 17 year record lows for May.

New Claims Per Million Workers – Click to enlarge

A soft economy with high unemployment, but where hardly any workers are  laid off each week suggests that employers are holding on to the workers they have with the skill sets they need because they cannot find those skills in the enormous pool of unemployed workers. The labor market of those with needed skills is tight. The April surge in job openings supports that view. The surge in job openings far exceeds gains in employment.

Those without these skills have been marginalized into a US underclass of “untouchables” who cannot participate in, or importantly, help to drive, economic growth. Instead, they become an increasing drag on growth.

In this regard, the financial bubble driven, distorted, maladjusted, top heavy US economy appears to be stretched to its limit. For an economy to maintain healthy growth it needs a growing population of workers who can afford to consume the goods and services the economy produces. Without that growth, stagnation is the best possible outcome. That’s the best case. With the number of workers who cannot participate in economic growth increasing either because they have no jobs or only jobs with low pay, economic implosion may be inevitable.

Timing is the issue. We don’t use economic indicators for stock market timing. The markets themselves are their own best indicators. However, when the claims data begins to weaken from the current extremes that should be a sign that the central bank driven financial engineering credit bubble has begun to deflate.

Claims At 2006-07 Bubble Top Levels – Click to enlarge