Initial Claims Maintain Bubble Record Levels Pushing Fed To Take Action On Rates

The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 274,000 on Thursday. The Wall Street Economist crowd consensus guess was 270,000.

We’re not interested in the expectations game. Instead, we focus on the actual trend. The actual weekly totals first set an all time record low in September 2013. That trend has continued since then, with each weak either being at or near record levels for that week each year. Previous similar periods were associated with the tops of bubbles, even continuing beyond the bubble peaks.

The Department of Labor (DoL) also 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 242,794 in the week ending May 16, a decrease of 88 (less than -0.1 percent) from the previous week. The seasonal factors had expected a decrease of 8,722 (or -3.6 percent) from the previous week. There were 287,398 initial claims in the comparable week in 2014”

Claims are down in this week more often than not. The actual change this week was too small to be significant. That compared with the 10 year average decrease for that week of -12,500 (rounded). However, claims rose by 16,600 in the comparable week last year. We can’t draw any conclusions from the fact that last week was weaker than average. Week to week changes are noisy. What’s important is that trend remains on track.

In terms of the trend, actual claims were 15.2% 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 strong side of that range. There’s no sign of an uptick in the trend of firings and layoffs.

There were 1,716 claims per million of nonfarm payroll employees in the current week. This was a record low, well below the May 2007 previous record of 1,985. That occurred just a few months before the carnage of mass layoffs that was to begin later that year. Employers were still clueless that the bubble had ended and that that would have devastating effects.

Likewise, the housing bubble had already peaked in 2006 but the stock market continued on its merry way, not finally ending its run until September 2007. The initial claims data was forming a slight negative divergence in 2007. It was a subtle warning of the underlying deterioration, but similar periods in the past had not correlated with market tops. In addition, at the 2000 stock top, claims gave virtually no advance warning of what was to come. We cannot depend on this data for advance warning of a decline in stock prices, although there should at least concurrent confirmation.

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, Louisiana, and Oklahoma 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. Oklahoma, joined the wake shortly after that.

With the rebound in the price of oil since the first quarter lows, the increase in the number of unemployment claims in the oil states had moderated, but last week they weakened again. In the most current state data, for the May 9 week, claims were up in Texas by 8% year to year, (vs. +4%% in the previous week), Louisiana +29% (vs. +10%), and North Dakota +71% (vs. +52%). Oklahoma was up by 28% (vs. + 29%). There’s been wide variance in these numbers week to week but the trend of claims being significantly higher than the same week last year has been persistent.

In the May 9 week, 13 states had more claims than in the same week in 2014. That was up from 9 the prior week. This number fluctuates widely week to week with many states near even. At the end of 2014, 8 were up year to year. At the end of the third quarter of 2014 there were just 5 but in early April this year the number had risen to 22. The impact of the wave of oil layoffs has subsided with the rebound in oil prices as producers take a wait and see approach to layoffs.

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 that, it should be an indication that the trend is beginning to reverse, and that the the trend of actual total claims should begin to reverse.

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 now running +6.3% in nominal terms. This is down from a peak of over 8% in February, but up from +5.1% a month ago. The May 12 week was the reference week for the May payrolls survey. The numbers for that week support the likelihood of a gain in May payrolls similar to April’s .

The claims data shows no sign yet of any cooling in this financial engineering bubble economy, with even the oil patch layoffs moderating. This will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later. The real problems will start when the Fed finds that in order to get rates up, and keep them up, it will need to begin shrinking its balance sheet. You can follow that soap opera in the Professional Edition Fed Reports.