Initial Claims At Record Lows Signal Economy Stretched To The Limit

The headline number for initial unemployment claims was 300,000, soundly trouncing the consensus guess of Wall Street economists of 318,000. The headline number is seasonally adjusted, therefore fictional. It may or may not give an accurate impression of reality, depending on the week.

According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 271,865 in the week ending May 24, a decrease of 15,533 (or -5.4 percent) from the previous week. The seasonal factors had expected an increase of 8,818 (or +3.1 percent) from the previous week. There were 319,508 initial claims in the comparable week in 2013.  - Department of Labor (DOL)

Initial Claims At Record Lows – Click to enlarge

Initial unemployment claims were 14.9% lower than the same week a year ago. This is at the strong end of the range of the annual rate of change the past 3.5 years, which has mostly fluctuated between -5% and -15%.

The actual change of a decrease of -15,533 from the previous week was far stronger than the 10 year average for this week, which was an increase of 6,400. Claims normally increase in the fourth week of May. The current reading was the strongest weekly change since at least 1998. Last year the week to week change for this week was an increase of 16,000. However, the current week may simply be a giveback from the previous week’s performance which was the weakest weekly change since 1998. There’s no explanation for the week to week volatility. The numbers are still within the norms of the trend.

New claims were 1,966 per million workers in May nonfarm payrolls. This was the strongest level since this week of May in 2000, just as the internet and technology bubble was beginning to deflate. The current number is the less than the same week of May 2006 at the end of the housing bubble when the ratio was 2,165 per million workers. The current ratio is the lowest since at least 1998, where my data on this stat begins. By this standard, this may be “as good as it gets.” In this regard, the US economy appears to be stretched to its limit, if not beyond it.

New Claims Per Million Workers – Click to enlarge