More signs of economic weakness are showing up in the allegedly strong jobs market.

In the week ending June 8, the advance figure for seasonally adjusted initial claims was 242,000, an increase of 13,000 from the previous week’s unrevised level of 229,000.

The 4-week moving average was 227,000, an increase of 4,750 from the previous week’s unrevised average of 222,250.

A California Anomaly?

The report shows the unadjusted level for California rose from 40,799 to 51,110. That’s an increase of 10,311.

So is this just California? Did it even happen in California.

State level data is not seasonally adjusted.

US Jobless Claims Rise, Led by California

Bloomberg reports US Jobless Claims Rise, Led by California

Initial applications for US unemployment benefits jumped to the highest level in nine months, led by a large increase in California, during a period where holidays and the end of school year can cause fluctuations in claims.

Initial claims increased by 13,000 to 242,000 in the week ended June 8, according to Labor Department data released Thursday. The figure was above all forecasts in a Bloomberg survey of economists.

New claims before adjustment for seasonal influences rose by 38,530 to 234,707 last week. Besides California, Pennsylvania and Minnesota saw sizable gains for a second week. The release noted that for the prior week ended June 1, Pennsylvania saw layoffs in transportation and manufacturing, while there were job cuts in education in Minnesota.

Two Opinions

Stephen Stanley, chief US economist at Santander US Capital Markets LLC, said in a note some of the increases in states are “implausibly large” and could be related to the end of the school year or general seasonal volatility.

“I view this more as noise than signal, and I am not going to worry for at least another couple of weeks about the possibility that layoffs are actually ramping up,” Stanley said in a note.

What Bloomberg Economics Says…
“California saw the largest gain in unadjusted initial claims (+10.3k), which makes us think part of the rise nationally could be due to weakening labor-market conditions. We estimate California’s minimum-wage hike for fast-food workers could cost the state 30k-90k jobs.” — Eliza Winger, economist

Continued Unemployment Claims

After rising from a low in June of 2022 to the ~1.82 million mark in August of 2023, continued claims have been mostly discounting a big dip then reversal in January of 2024.

Other than a count of 1.829 million in January of 2024 and 1.823 million in October of 2023, this is the highest number of continued claims since November of 2021.

Is this California School Year Noise?

That’s the claim by Stephen Stanley, chief US economist at Santander US Capital Markets LLC.

I strongly disagree.

California is weakening as expected and reported in this corner.

California Restaurants Cut Jobs as Fast-Food Wages Set to Rise

On March 26, I noted California Restaurants Cut Jobs as Fast-Food Wages Set to Rise

California is not having a good week. State Farm cancelled 72,000 policies and now fast-food chains are slashing workers.

California Fast Food Joints Slashed 10K Jobs

On June 6, ahead of this report Fox News reported Think Tank Says California Fast Food Joints Slashed 10K Jobs

The California Business and Industrial Alliance (CABIA) slammed Democratic Gov. Gavin Newsom for pushing through the law, which went into effect April 1 – and was blamed for forcing one beloved taco chain to shutter 48 locations in the state last week.

Goodbye Rubio’s Grill

The Wall Street Journal reports Rubio’s Restaurants Files for Bankruptcy With Plans to Sell Chain

Rubio’s Restaurants, operator of the Rubio’s Coastal Grill fast-casual restaurant chain, has filed for chapter 11 bankruptcy for the second time in less than four years and plans to sell the company to its current lender.

Rubio’s said it recently closed 48 underperforming locations in California, and that its remaining 86 sites in California, Arizona and Nevada will continue normal operations.

Red Lobster, the largest seafood restaurant chain in the U.S., filed for bankruptcy last month after failing to recover from dwindling traffic it suffered during the pandemic as menu prices crept higher.

BurgerFi International, owner of the Anthony’s Coal Fired Pizza & Wings and BurgerFi chains, last week said it is exploring strategic alternatives amid liquidity challenges and that it had entered into a forbearance agreement and amendment to its credit facilities with TREW.

Business Climate Casualty

Also consider Rubio’s Coastal Grill: a ‘Business Climate’ Casualty in California

California’s $20 an hour fast-food minimum wage took effect two months ago, and the casualties are mounting. Rubio’s Coastal Grill, famous for its fish tacos, closed 48 restaurants in the state on Friday.

“The closings were brought about by the rising cost of doing business in California,” the Carlsbad-based fast-casual chain explained. It added that its decision to close the four dozen “underperforming locations” in the Golden State followed a review of operations and “the current business climate.”

Gov. Gavin Newsom responded by blaming Rubio’s. Communications deputy Brandon Richards tweeted that the chain faced other problems and had filed for bankruptcy in 2020. A major culprit then was Mr. Newsom’s excessive Covid lockdowns. The flack also suggested that the minimum wage isn’t doing damage because Chipotle “just reported HUGE profits.”

But Chipotle has locations across the U.S. Chipotle execs also noted on an April earnings call that California’s wage mandate had caused it to increase menu prices 6% to 7% in the state and said it would hurt restaurant margins. They noted that Chipotle’s competitors were in worse shape to weather higher labor costs.

While California has added 35,100 leisure and hospitality jobs in the last year, aggregate hours worked by all workers in the industry have declined by 3%. The average weekly earnings for California leisure and hospitality workers has declined by 2.6% owing to a large drop in hours worked.

Congratulations to Newsom

Rubio’s went bankrupt in 2020 thanks to Newsom’s covid lockdowns.

Then in 2024, Newsom bankrupted the chain again.

What other governors can make such a claim?

Not a Teacher’s Thing

I believe we understand what’s going on in California and can dismiss the view of by Stephen Stanley, chief US economist at Santander.

I suggest he read this blog and open his horizons.

Just a California Thing?

That’s the question here. My conclusion is no. Data is weakening on so many fronts simultaneously that it’s not just California.

QCEW vs BLS Jobs

(Click on image to enlarge)

Note: The numbers in all of my charts are unadjusted. They need to be because QCEW numbers are not seasonally adjusted.

The QCEW (Quarterly Census of Employment and Wages) is a count of Unemployment Insurance (UI) administrative records submitted by 11.9 million establishments. That’s about 99 percent of the data.

Nonfarm Payrolls are are from the Establishment Survey (CES). The sample survey was 666,000 individual worksites in 2023. That’s about 5.6 percent of the data.

I discussed above QCEW chart on June 6 in How Much Does the BLS Overstate Monthly Jobs? Here’s the Answer

In retrospect, by “overstate” I should say “differ” although in this case I am confident overstate is correct.

CES vs QCEW Full Year 2023

• CES: 155,211,000 to 158,269,000 (+3.06 million)
• QCEW: 152,525,000 to 154,848,000 (+2.32 million)

I do not have confidence levels on QCEW but they should be much more accurate than CES.

For the full year, the difference between QCEW and CES is 735,000.

Payrolls Rise 272,000 Employment Drop 408,000

The data is confusing and conflicting in many ways.

For discussion, please see Another Bizarro Jobs Report – Payrolls Rise 272,000 Employment Drop 408,000

Nonfarm Payrolls vs Employment Gains Since May 2023

• Nonfarm Payrolls: 2,756,000
• Employment Level: +376,000
• Full-Time Employment: -1,163,000

In the last year, jobs are up 2.8 million while full-time employment is down 1.2 million

Similarly, there is a huge discrepancy between Gross Domestic Product (GDP) vs Gross Domestic Income (GDI)

Real GDP vs Real GDI

(Click on image to enlarge)

GDP and GDI are two measures of the same thing. Income received should match product produced.

However, income is historically low vs GDP

For discussion of the GDP-GDI discrepancy, please see More Soft Economic Data, Q1 GDP Revised Lower, Q4 GDI Significantly Lower

GDI lends credence to the idea that the household survey (employment) is correct, not the CES establishment survey (nonfarm payrolls) with its assumed birth-death adjustments.

Importantly, QCEW fits in the picture as well.

QCEW, the Household Survey employment numbers, and GDI are in sync. The outlier is the nonfarm payroll report.

On that basis, coupled with weakening trends in hard data, I repeat my unpopular opinion: A Second-Quarter Recession This Year Looks Increasingly Likely

The Fed seems confident about the short term. I suggest they should be as confident about 2024 as they are about 2025, and that translates to no confidence at all.

Today, I heard two prominent economists or analysists citing noise (one noted above).

Might I suggest the data is so noisy in so many places and in so many ways, that maybe it’s nonfarm payrolls that is the real noise.

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