For the first time in 2014, initial unemployment claims were higher than the same week a year ago. The difference was slight, but just the fact that they were not lower than last year is troubling because it suggests that the improving trend may be losing steam.
The seasonally adjusted headline number for initial unemployment claims came in above consensus expectations at 348,000 for the week ended February 22. Wall Street economists had guesstimated 335,000. Actual filings totaled 310,816 (see Note below) which was up 0.1% from the same week a year ago. This was near the top end of the range year to year change over the past 4 years. In addition, the short term trend since the beginning of the year has been toward less favorable comparisons.
The Fed’s timing on changing policy is, as usual, impeccable. It is declaring victory and going home just as its abject defeat on the efficacy of QE in increasing employment may be about to become apparent.
Initial Unemployment Claims – Click to enlarge
- The DOL reported that “The advance number of actual initial claims under state programs, unadjusted, totaled 310,816 in the week ending February 22, a decrease of 10,598 from the previous week. There were 310,389 initial claims in the comparable week in 2013.”The year over year increase of 0.1% was the second time in 3 weeks that the annual rate of change was less than 1%. The central tendency of the trend over the previous 3 years had been around -10%. Since the second week of this year the decline has never been greater than 8.6%.The week to week decrease of -10,598 was less than the drop of 40,637 for this week of February last year. It was also worse than the 10 year average of a decline of -15,352 for the same week. One bad week does not a trend make, but this has been trending the wrong way for six weeks now.
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Initial Claims and Stock Prices – Click to enlarge
Stock prices and initial unemployment claims have historically had a strong inverse correlation. A negative divergence developed in the final burst of the last bubble in 2007, with the trend of claims stalling from 2006 through 2007 while stock prices entered their final blowoff. The flat year to year trend in claims could mean that the trend is moving in the direction of developing a negative divergence versus stock prices. At the very least, it’s clear that stocks have “bubbled off” over the past 15 months. If the improvement in initial jobless claims stops, it would suggest that that the institutional mania for equities is in its final stages.
Note: The headline number is a seasonally adjusted, fictional number. The Department of Labor also reports the actual number of filings which the 50 states count and send to it weekly, absent a few interstate claims which show up in the following weekly revision of the advance figure released each week for the week before. Those upward revisions are usually in the 1,000 to 4,000 range, which isn’t material in the big picture, but in this case it will make a bad number even worse, perhaps turning the year to year trend negative.
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