Kevin Spires, CFA, FRM
Weekly claims rose to 387k from last week's initial report of 386k initial jobless claims. Last week's report was revised higher to 389k. The Bloomberg consensus was for 383k new claims.
While there has been a recent rise in jobless claims, it is difficult to distinguish the recent rise from seasonal adjustement noise. Claims are 8.73% below their level 52 weeks ago and the 13 week moving average is 8.74% below its level 52 weeks ago. Unfortunately, we won't know if the recent rise is noise or something more ominous until late July.
There are two reasonable explanations for the recent rise in claims. The first explanation is that employers are cutting to the bone in anticipation of higher taxes and increased health insurance costs that are due in 2013/2014. The "Fiscal Cliff" and the uncertainty surrounding Obamacare have caused employers, even those flush with cash from record profits, to pare back or delay investments and hiring. This uncertainty has led to other businesses seeing lower demand for their products and a need to reduce headcount which has led to the increased claims we have seen recently.
The second explanation puts the blame squarely on seasonal adjustment issues. Due to the massive drop in activity from September to February of 2008/09 the seasonal adjustment figures are out of whack. The adjustment problems are leading to data being adjusted higher in the fall/winter and then lower in the spring. This adjustment problem can be "adjusted" for by looking at year over year trends or by looking at the changes in the unadjusted data.
I am inclined to place equal weight on both explanations. It is clear from looking at the year over year data (down 8.73% year over year) that initial claims are in a sustained downtrend and are nowhere near to signaling an ominous change in the underlying economy. It is also clear that claims are still too high to support above trend economic growth. Something is holding the economy back - whether uncertainty about future fiscal policy or whether the certainty of continued fiscal consolidation at the state and local governmet level is causing higher than expected claims. Either way, we will have to get past the summer and well into the fall (and maybe past November 6th) to have a clearer picture for jobless claims.
While there has been a recent rise in jobless claims, it is difficult to distinguish the recent rise from seasonal adjustement noise. Claims are 8.73% below their level 52 weeks ago and the 13 week moving average is 8.74% below its level 52 weeks ago. Unfortunately, we won't know if the recent rise is noise or something more ominous until late July.
There are two reasonable explanations for the recent rise in claims. The first explanation is that employers are cutting to the bone in anticipation of higher taxes and increased health insurance costs that are due in 2013/2014. The "Fiscal Cliff" and the uncertainty surrounding Obamacare have caused employers, even those flush with cash from record profits, to pare back or delay investments and hiring. This uncertainty has led to other businesses seeing lower demand for their products and a need to reduce headcount which has led to the increased claims we have seen recently.
The second explanation puts the blame squarely on seasonal adjustment issues. Due to the massive drop in activity from September to February of 2008/09 the seasonal adjustment figures are out of whack. The adjustment problems are leading to data being adjusted higher in the fall/winter and then lower in the spring. This adjustment problem can be "adjusted" for by looking at year over year trends or by looking at the changes in the unadjusted data.
I am inclined to place equal weight on both explanations. It is clear from looking at the year over year data (down 8.73% year over year) that initial claims are in a sustained downtrend and are nowhere near to signaling an ominous change in the underlying economy. It is also clear that claims are still too high to support above trend economic growth. Something is holding the economy back - whether uncertainty about future fiscal policy or whether the certainty of continued fiscal consolidation at the state and local governmet level is causing higher than expected claims. Either way, we will have to get past the summer and well into the fall (and maybe past November 6th) to have a clearer picture for jobless claims.
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