After running at all time record bubble levels since September 2013, initial jobless claims may finally be signaling that the central bank driven asset bubble economy may be beginning to crack.
The actual unmanipulated data on weekly first time unemployment claims has painted a picture of a US economy that is in a bubble that has been boiling over for 18 months, driven by the massive central bank money printing campaigns and ZIRP. Today’s data on jobless claims may be a sign that the bubble has been pricked and the air is beginning to hiss through the pinhole. I use the word “may” purposefully, because the evidence is not yet sufficient for greater conviction, but there are hints.
The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 320,000. The Wall Street conomist consensus guess was 295,000. They have been projecting bubble level numbers in a nearly straight line. Last week they projected 290,000, the week before 295,000, the weeks before that 285,000 and 290,000. This kind of high priced Wall Street call girl thinking eventually ends in “woops” moment. This week was not quite that, but it was perhaps an “uh” moment.
Rather than playing the headline number expectations game, our interest is in the actual, unmanipulated data. Whereas SA numbers can be and often are misleading, the actual data is the actual data. Tracking the actual total of state weekly counts is the only way 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 310,497 in the week ending February 28, an increase of 29,858 (or 10.6 percent) from the previous week. The seasonal factors had expected an increase of 23,491 (or 8.4 percent) from the previous week. There were 317,832 initial claims in the comparable week in 2014. ”
This weekly performance was worse than average for that week of February for the second straight week. The actual week to week change was an increase of 30,000 (rounded). The 10 year average for that week is an increase of just 7,000 (rounded). This year’s increase compared with an increase of 5,000 in the comparable week of 2014. This suggests weakness in the short run, but what about the trend?
Looking at the momentum of change over the longer term, actual first time claims were 2.3% lower than the same week a year ago. Since 2010 the change rate has mostly fluctuated between -5% and -15%. Therefore, the current number is slightly worse than the normal range. However, there have been several weeks over the past two years where the rate of change was near or slightly above zero. There’s not enough evidence here to make an unequivocal call that the trend is beginning to weaken.
At the last bubble peak in 2006 claims began to increase late in that year. The housing bubble had already peaked a few months earlier but the stock market continued on its merry way for 9 more months, not finally ending its run until September 2007. In that instance a clear breakout in the number of claims toward the end of 2006 gave plenty of advance warning that all was not well, before stock investors got a clue. At the 2000 top, claims gave little advance warning. They began to break out concurrently with the top in stock prices through midyear 2000.
The current hints of possible weakness come on the heels of the long running US oil/gas bubble, which peaked in the middle of last year and has since collapsed. In this case prices have collapsed but production hasn’t so the accompanying jobs decline will be slow to take shape. This may be analogous to the housing bubble peak in 2006. It took almost a year for the effects of that to begin to be felt.
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, and Louisiana, claims have recently been above year ago levels. North Dakota and Louisiana claims first increased above the year ago level in November. Texas reversed in late January. In the most current state data, for the February 21 week, claims in these states were well above year ago levels. Texas was up 24%, Louisiana +9%, and North Dakota +24%. 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.
In the February 21 week, 17 states had more claims than in the same week in 2014. A month ago only 11 had a year to year increase. At the end of 2014 only 8 were up year to year. At the end of the third quarter of 2014 there were just 5.
The growing number of states with year to year increases in claims is akin to a stock market advance-decline line in a negative divergence from an advance in the market averages. It could be a warning sign of deterioration that is not apparent in the topline numbers.
I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Professional Edition. The growth rate of withholding taxes had run red hot through early February, hitting a 12 year record that also had the feel of an economy that had reached the boiling point. But the gains began to recede over the past 3 weeks. This may be just a normal short term cyclical turn but it’s consistent with the signs that jobless claims are on the rise.
The recent record lows in new jobless claims and the gigantic gain in withholding taxes around the BLS nonfarm payrolls survey week of the 12th of the month suggests a blowout jobs number that will surprise the Wall Street crowd. But that may already be ancient history, given the hints that things are changing as we speak.
The big actors in the economy have been 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. If the jobs data tomorrow is strong, that will only add fuel to the fire. It could spook traders and cause the market to take a spill.