Today’s Initial Unemployment Claims surprised quite a few people:
In the week ending March 29, the initial
claims were 407,000, an increase of 38,000 from the previous week’s revised
figure of 369,000. The 4-week moving average was 374,500, an increase of 15,750
from the previous week’s revised average of 358,750.
As you can see by the chart below, this is quite a spike:
Courtesy of Barron’s Econoday
>
Let’s take another look at new claims, only from a different, and much longer term, perspective.
Dennis Gartman recently used the chart below; He presented new Unemployment Insurance Claims inverted (higher on the chart means less claims). This makes the chart appear as if its of a are a rallying equity.
Note that we never get into recession territory until that Trendline gets broken:
Incidentally, this chart does not include today’s data . . .
~~~
What do the assembled masses think? Was today’s Unemployment Claims data an aberration, or proof the start of an increasingly weak labor market, and a contracting economy?
What say ye?
Not an aberration, rather evidence of the start of an increasingly weak labor market, and a contracting economy.
I love these charts. Unless the data gatherers are corrupt they don’t lie. America is heading for a recession and its gonna be pretty bad. But I’m feeling more optimistic today than previously. From what I’ve been reading a long term upswing in commodity prices means generally higher prosperity globally. America also farms very efficiently and has lots of mines and can move quickly to adopt new technology. It must.
I love these charts. Unless the data gatherers are corrupt they don’t lie. America is heading for a recession and its gonna be pretty bad. But I’m feeling more optimistic today than previously. From what I’ve been reading a long term upswing in commodity prices means generally higher prosperity globally. America also farms very efficiently and has lots of mines and can move quickly to adopt new technology. It must.
What was the October 2005 spike a result of? Looks like some kind of special cause variation.
BCS,
Katrina
Aha. Thanks.
I took a look today at the Initial and Continuing claims on a YoY basis and today’s change is within the noise limits. That is it’s not a big deal off trend…YET. But that shouldn’t be a surprise given where we’re at in the business cycle. Unemployment claims is a lagging indicator, along of course with Unemployment, and it shifts abruptly. There is an uptrend in claims but we haven’t busted any “limits”, again yet. The problem is that we won’t get much warning when it does shift. This’ll tell us how painful it has been. Tomorrow’s Payrolls, especially the TREND (all hail BR) will be very interesting.
“what I’ve been reading a long term upswing in commodity prices means generally higher prosperity globally”
Yes, but remember, commodities lag the downturn AND are forced up through poor state policies with currency.
The early 80’s would have been great with that view.
There seems to be a common mantra from the media, talking heads, Perma-Bulls, and it goes something like this.
“We already know things are bad in the credit markets, and even if another large financial institution goes down, it doesn’t matter because all the bad news is already priced into the market”.
In other words, the market doesn’t care about more bad news … it simply doesn’t matter any more.
I personally think the market is acting very resealant right now. I do think unexpected, Bad News (like a 93 year old WS Bank going kaput) is still relevant, and only creates more stress on the market. Ultimately, news and events still matter and the market will react to it. Am I wrong?
“Today’s Initial Unemployment Claims surprised quite a few people:”
So I guess that means the news was “unexpected”….again?
Common Barry!
Even with today’s numbers, the data is not as bad as the bears (and the two-brain-celled media) have been trying to portray and scare everybody.
Even with today’s numbers, the 4-wk average is BELOW the historic (over the last 28 years) average (green line).
http://farm4.static.flickr.com/3002/2386414140_619b18f68d_o.jpg
P.S. We will get a positive number surprise tomorrow vs. negative 50K expected, and the mother of all short squeezes will follow (S&P 500 above 1400).
Have a nice short squeeze tomorrow!
~~~
BR: That Data series is pretty straight-forward: The chart shows claims over the past 2 years going from way below the mean to reaching it on a 4 week average. (And data series never revert to the mean and then stop — you typically careen way past it, to the upside and the downside).
Don’t focus on the snapshot, look at the moving picture . . .
Initial claims -70k.
NFP -407k.
We’ll see much worse numbers before this recession is done:
http://www.dailyfx.com/story/topheadline/Non_Farm_Payrolls__Dollar_Outlook_Hinges_1207242757904.html
Average initial jobless claims during recession => -413k to -559k
Largest average month NFP loss during recession => -325k to -343k
From the Feb monthly employment data, the slide in the rate of change in civilians employed down to about 0% and number of job losers as a % of civilians unemployed surging, i’d say that today’s jobless claims report is further confirmation that the labor market is SOL. Tomorrow’s March report is going to be very interesting.
Sorry, that should have been:
Initial Claims 407k
NFP -70k (prediction for tomorrow)
We should know something is wrong. Bulls are back with an all in attitude on the market calling for the “mother of all” squeezes. Which as most shorts know has already occured.
People looking at the back half of the year are not going to be happy. Where are the jobs going to come from? Construct more housing? Build more factories in Asia?
Hell no, those are already done.
Put a chart like 4 year CSCO against the Hang Seng, Korea, Taiwan. Then you’ll see what an economic unsustainable boom we were in.
You can only pile money into Asia on this kind of scale once. It caused the growth we had. Without it we go flat.
Hi Barry,
I’m a long-time fan of your blog (from Athens, Greece) and this is yet another interesting contribution. I think the real issue is not whether the US is in a recession or drastic slow-down of some kind but rather how fast you (and we) will be out of the woods. Do I read it right that with today’s claims the trendline is clearly broken? Or the real question was why was it not broken before?
I agree with Your Mother-In-Law.
The data is more suggestive of a mid-cycle slowdown of 1990’s than with a “severe” recession or the “worst recession since the great depression” Soros nonsense (by the way, the guy has been good with trading on insider information [still wanted by France for insider trading] but he has been a very bad economic forecaster).
Its a continuation of the deterioration in the labor market which will get worse. But employment is a lagging indicator so I wonder what the value is of, say, picking the date the recession began. I’m more interested in leading rather than lagging indicators.
C’mon, that second chart is pretty silly. Those lines are drawn ex post. They seem to connect the post-recession low to the next lowest point before the subsequent recession, but obviously there’s no way to determine that until after the fact. If anyone were drawing these lines at the time, they would have predicted recessions in ’67, ’75, ’84, and ’95. Heck, even the “draw the line from the start to the next lowest point, and then when it next hits the line, it’s a recession” rule was disproven in ’05. Tea leaves.
(This isn’t to say I don’t think things are going from bad to worse, just that these red lines don’t show it.)
(Oh. Just noticed the scale is inverted. That helps some.) But what is surprising here is that the initial UI claims (inverted) have a trendline that is improveing and that over the past few years that trend of improvement has merely stalled (except for the most recent number).
Listening to the news you’d think the labor market was declining like a rock. Didn’t that UK paper show a pictire that evoked a Depression era soup line?
Any trader might like to preemptively enter a short position here to play the break, but the breakdown won’t be confirmed until more data points have been charted.
Unless we find another bubble, and damned quick, we’re headed down. Employment and economy down. We have come to rely on bubbles, and this time, there isn’t one.
Wait the unemployment claims break below that Katrina protection point. Almost all headlines say unemployment worse since 2005 and then people think we’ll that’s not so bad. But the Katrina event was sudden and basically localized.
I saw headlines of at least 10K jobs just this week that will be lost.
The bulls here make no claims as to why the market will go back up, where jobs will come from or where profits will come from. They only say it’s going back up because it always does.
What if we turn into Japan? After all why not? Similar problem. Japan stock market only down for 5 years now. There’s no reason that couldn’t also be the US.
Marcus, there’s a bubble. Commodities.
John Borchers,
There has been a spike in hiring in the South. In particular, the factories involved in exports have been hiring a lot lately. I see a surge in help wanted everywhere lately. The home prices are not dropping in my area. I am looking to buy a farmland but the price keeps going up and up (no signs of slowing).
~~~
BR: Can you reference a data source showing this to be the ase? I cannot find anything remotely suggesting this to be true.
How about a link ?
>these red lines don’t show it.)
BR didn’t claim all breakouts prophecized recessions, just that all recessions had leading breakouts.
recession->breakout not breakout->recession
Bears! Can you please help me?
“Morgan Stanley (MS) director Roy J. Bostock reported Thursday buying almost half a million dollars worth of company shares. Bostock bought 10,000 shares of the Wall Street firm on Wednesday for an average price of $49.03, according to a filing with the Securities and Exchange Commission. This is Bostock’s first purchase of Morgan Stanley shares since December 2006 and the first by any Morgan Stanley insider since last June, according to data provider Washington Service.”
Why would he buy before MS earnings release, before additional “nasty write-downs”, and before “Financial Armageddon”?
I think the insiders feel (know) that this is the bottom.
~~~
BR: December 2006, MS was ~ $80. How did that purchase work out for him. . . ?
Farmer,
Where in the South do you live? The housing crisis isn’t in rural land but exurban and suburban communities on the coasts and Midwest. These are in areas where it’s simply become unaffordable for many people to own a home (think California, Florida, New York, etc.)
Why does this matter if you don’t live in these areas? Well most of the money that drives the U.S. economy flows through there. And a downturn in consumer spending there will affect the rest of the country – though perhaps not as badly.
With the declining dollar, I’d have more confidence in exports helping us out. Unfortunately most of our skilled industrial worker base has been all but wiped out the past two decades. The jobs may be there for now, but will we have the people to fill them?
Even in California where I work at a tech firm, we were recruiting like crazy but it was damn hard to find qualified people. If not for our luck finding and filling two roles with local talent, we might have had to outsource.
Catch is, the dollar was gone down so far – it’s actually more economical to outsource people in Atlanta and North Carolina versus Canada and Europe (and in some ways India.)
Price action in treasuries this week make it pretty clear that tomorrow’s number will print positive. Stocks through the roof and treasuries will be destroyed.
Doesn’t mean anything as far as what the economy is doing as the employment numbers have little basis in reality. I’m just saying that markets often know these numbers in advance and I think the price action in treasuries this week is indicative of that.
With the jobless economy, there is a lower bar to get over than past history would indicate.
The better than expected Claims than last week, showed out-layer data, that helped to create the striking uptick. Now we continue to have increased claims.
But the stagflation trade could indicate a long shallow recession till, like a poor endurance runner, the market just wears itself into exhaustion.
Never convince the market of that, until it’s too late, they like the legislature/military can never fight the next war, and are always fighting the last one.
Bank on it.
Point being, the employment data will continue to be… nominal. The rest of the data will continue to show flat to contracting data.
if there is a pool I have Negative 65K for the nfp… +/- margin of error of the NFP…70K.
next month negative 150K.
The claims numbers are pretty noisy, possibly more so at present because of the timing of Easter. The rising 4wk does suggest trend weakness though, so even if initial claims bounce back a bit on timing factors, I wouldn’t take that as an all clear signal. NFP is pretty much a throwaway as a real-time tool.
Mother-in-Law has a nice chart of continuing claims that shows two major spikes, one in early 90s and the other in the late 90s. Both spikes occurred as a result of a recession, which were a result of a credit crises. The costs of the Savings and Loan crises of the 80s and early 90s was estimated with 160b USD. We are way passed this already. Given actions of the Fed and others in the current crises, the first bail out of a major WS bank since the Great Depression or opening the discount window to speculating brokers and trading desks, we are experiencing a wild ride way beyond SnL and the dotcom bubble. George Soros, Alan Greenspan and others have said publicly that we are in the worst financial crises since the Great Depression. Meredith Whitney from Oppenheimer today came out with a report saying that corporate loans have decreased by 50% since July last year. Look carefully at this chart and you will understand where we are headed.
The big push up in the markets earlier this week was to build a cushion against horrendous numbers tomorrow.
Just like many say don’t fight the fed, the market can’t fight fundamentals forever.
It is clear that we are still walking around with our heads in the clouds when you see that the latest bill congress is pushing to save us all really just gives a handout to the heavily lobbied home industry.
Eventually reality will set in, maybe tomorrow maybe not, but it will happen. Remember at the core of this credit implosion is the housing market. Housing is very cyclical. When do people buy and sell houses? The summer. The summer is almost here. By the end of this summer our fates will be written.
Recession.
Wall Street’s always ahead of the curve (well, this time it was the real estate market), but we’re just about ready for this bear market to trickle down to the rest of the country.
Employment was the one thing keeping this economy afloat – now that the other shoe has dropped, we’re going head long into a rough 2008.
-Wayne
String,
Congress will try to prop housing up because they have to. Look at that tax base disapearing. That’s your city cops, fireman, trash etc…going poof! The big thing IMO that they miss is that alot of this mess was “speculation” meaning they will not be able to keep many in their homes. They are long gone!
Other countries have tried to prop up prices and give incentives but those never help the ones intended and it just becomes part of the game.
Interesting charts. We are heading into uncharted waters – a consumer-led recession that noone has ever seen before, everyone’s prognostications have been built on the experience of corporate-led recessions in the past – this will be a new experience, all bets are off.
>> Catch is, the dollar was gone down so far – it’s actually more economical to outsource people in Atlanta and North Carolina versus Canada and Europe (and in some ways India.)
But, that supports what Farmer was saying, right?
>> Why does this matter if you don’t live in these areas? Well most of the money that drives the U.S. economy flows through there.
Then, that will change. More money will go into the hands of Farmer and his neighbor. And their spending will drive the economy.
>> … action in treasuries this week make it pretty clear that tomorrow’s number will print positive. Stocks through the roof and treasuries will be destroyed.
Steve, what is that “action” that tips you off?
Is it possible that at this point the money is still in the markets because it has nowhere to go. Is there a safe investment to run to now?
Talking to even educated friends, they don’t want to hear how bad things are. Most of them just soak up the good news, and run with every excuse thrown out there to argue why things are going to rebound soon. There is a real psychological barrier for a lot of people that just can’t imagine America not being too big to fail. I think it is similar to the mindset of certain people who refuse to believe that the government would ever lie to them.
Farmer lied. Hiring is down in the south. Neither are plants being built in any big amount.
That “outsourcing” won’t stand for a hill of beans to the loss of capacity in the “boom states 1996-2007” which will crush the economy.
Once the dollar rebounds, a 2nd recession will be triggered.
Farmer might be providing true but anecdotal information.
Foreign companies want to avoid protectionism. As long as they can still manufacture profitably (though not with the same margins as the rest of their offshore base), they might build a few token plants in the US.
On the recession indicator front, it may be worth taking look at the Chicago Fed’s National Activity Index (CFNAI). This is a composite of 85 indicators, published monthly, and has proven its ‘real time’ worth over decades, (the data series that I attach runs from 1967).
The CFNAI 3-mos MA has been negative every month since August 2006 but it is only when this falls below -0.70 that the probability of recession moves towards certainty, and it has now been below that ‘magic number’ since November 2007.
Please see: http://www.chicagofed.org/economic_research_and_data/cfnai_data_series.cfm
Pete_bk: Is it possible that at this point the money is still in the markets because it has nowhere to go.
That is a good point, particularly when the concentration of ownership of financial assets is taken into account. Yes, we’ve all heard of ‘stock market democratization’ and ‘ownership society’ but turns out that, well, I’ll simply attach a table:
Wealth distribution by type of asset, 2001
Investment Assets
Top 1 percent Next 9 percent Bottom 90 percent
Business equity 57.3% 32.3% 10.4%
Financial securities 58.0% 30.6% 11.3%
Trusts 46.3% 40.4% 13.3%
Stocks and mutual funds 44.1% 40.4% 15.5%
Non-home real estate 34.9% 43.6% 21.5%
TOTAL 47.8% 37.7% 14.5%
(Edward N. Wolff, Changes in Household Wealth in the 1980s and 1990s in the U.S., 2004)
OK, such concentration tends to indicate the existence of a rentier class which has little to no experience on the production side so may be disinclined to shift towards potentially more profitable areas even as/because it remains moreless unaware of the financial dangers it faces. Or, if aware, is certain of being bailed out.
samsin: As to will we have the people to fill those jobs:
I heard it right from one hiring manager, “we are not looking to hire people who are unemployed”.
This was in response to my suggestion when there is so much un- and underemployment in the field I don’t find it plausible it is so hard to find people as is being represented by employers (who have pretty much grazed off most personal referrals and are reluctant to sift through piles of resumes and phone screens).
Based on similar statements this sentiment extends right to people not currently working in the field.
So it looks like at least in this sense, no “we” don’t have the people.
<<<<"Steve, what is that "action" that tips you off?" The 'action' is the fact that 2 year treasuries have gotten destoyed this week despite Bernanke's gloomy comments on Wed. and a bad jobless claims number yesterday. With zero evidence that the economy is picking up speed, markets have now priced out any further rate cuts beyond 25 bp at this month's meeting. If, as I expect, the number prints positive this morning, treasuries will get destroyed again. If you believe (as I do) that we're in the early stages of this slowdown, that will be the time to step up and start buying 2 years (or late 09 eurodollars).
Thanks, Steve.
BR,
Farmer was telling the truth.
Look at the states like Texas and Alabama.
The lowest unemployment rates in the last 20 years, 4.1% and 3.5% respectively.
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LASST48000003&data_tool=%22EaG%22