Initial Unemployment Claims Chart In Danger Zone

Courtesy of Lee Adler of the Wall Street Examiner

Initial unemployment claims for the week ended January 25 were worse than Wall Street economists expected based on the seasonally adjusted headline number.

The actual number of initial claims, not seasonally adjusted, for this week of January was 354,604, a drop of 59,700 from the prior week. The average decline for the fourth week of January over the prior 10 years was 64,600. The current number was well within the typical range. It the lowest number of initial unemployment claims for that week since 2006, at the top of the housing bubble, and was even lower than that week of January 2005. It oddly suggests an overheating economy, driven by the distortions caused by QE and ZIRP.

Initial Unemployment Claims Chart- Click to enlarge

Initial Unemployment Claims Chart- Click to enlarge

Strengthening Trend in Initial Unemployment Claims Chart Slows

The trend of improvement in the initial unemployment claims chart has slowed in recent months. That’s to be expected as the year to year comparisons get tougher. But other than that, not much has changed. The current number was down 4% year over year. That compares with down 5.2% the previous week. That’s still in the range of 0 to -15% that has prevailed since 2010. It’s too soon to say if this is a sign of persistent slowing, but if it is, it would be a warning of potential trouble for the stock market.

The Department of Labor reports the actual, NSA data, but the mainstream media ignores it. Here’s what the DOL had to say about it. “The advance number of actual initial claims under state programs, unadjusted, totaled 354,604 in the week ending January 25, a decrease of 59,707 from the previous week. There were 369,480 initial claims in the comparable week in 2013.”

Stock prices and initial unemployment claims have historically had a strong inverse correlation. That’s depicted on the chart below. 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. No such divergence has developed yet in the current market. The chart below uses a log scale for stock prices to better depict the percentage gain in stocks over time.

Initial Claims and Stock Prices - Click to enlarge

Initial Claims and Stock Prices – Click to enlarge

 

The slowing of the drop in claims over the past year shows that the Fed’s QE 3-4, which was announced in September 2012 and took effect in November of 2012, has been ineffective in stimulating greater job growth but has worked to send stock prices into the stratosphere.  

I cover the relationship between stock prices and the Fed’s open market operations weekly in the Wall Street Examiner Professional Edition. Click this link to try WSE's Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner.

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