Jobless Claims Sound Yet Another Economic Warning Siren

A troubling trend only intensified with Thursday’s release of the Weekly Initial Jobless Claims data for the period ending April 30, 2011. While the government blamed the deterioration on exogenous factors, and while much of the popular press bought in, we can’t help to note the softness seen in the service sector last month and other impacts we expect from important increases to gasoline prices.

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Jobless Claims Sound Yet Another Economic Warning Siren

The Weekly Initial Jobless Claims Report showed new filers for unemployment insurance benefits spiked up by 43,000 in the latest period, increasing to 474K. The federal government tried to lay blame on anomalous factors, but the week’s data marked the continuation of an increasingly troubling trend begun several weeks ago. That trend is illustrated by the four-week moving average, which rose by 22,250 in this latest period, to 431,250. We’ve documented its creeping to and above the market-despised 400K psychological threshold.

The government listed three specific anomalous issues at play, including a spring break holiday in New York that is not covered by seasonal adjustment; a new emergency benefits program in Oregon and auto plant shutdowns caused by supply chain issues tied to the disaster in Japan. Firstly, one of these issues, the spring break, only applies to the latest period, and the rising trend has extended for at least three weeks now. Secondly, the supply chain issue may only be temporary, but it is still affecting Americans in a real way. Income streams have been reduced, and those families still have inflexible expense streams to cover, and so discretionary spending will be affected at those households. Finally, the Oregon issue is perhaps now capturing a small group of unemployed Americans who were otherwise lost through the cracks, and so the data was previously understating need. In other words, there’s no good news in anomalous issues, even if they are completely to blame. The fact is that more people needed help last week.

The problem is though that it would appear anomalous issues are not completely to blame. Rather, consumer spending is seeing direct impact from high gasoline prices. As spending declines, we see decreased business in the important service sector, which was illustrated by the just reported ISM Nonmanufacturing Index. The service sector measure fell to 52.8 in April, down from 57.3 the month before (when we presciently authored our article, Beginning of the End for the Service Sector). That in turn will inevitably drive layoffs, and while Challenger’s Announced Job-Cuts data did not agree with our thesis in April, the creeping seen in the weekly jobless count has. By the way, we captured that change as well.

So while much of the popular press wants to buy into government excuses, we see the evidence as overwhelming, the economy is marking the effects of high priced gasoline. This latest constraint to a once spoiled American consumer is too important to not have deep impact to our economy. As price hikes continue in consumer goods as well, as announced by Kimberly-Clark (NYSE: KMB) and others, a vulnerable American consumer should weigh more heavily on a vulnerable small business sector. The result, if not miraculously mitigated, should be slippage back into recession.

FYI:
Looking at the weekly claims data, the insured unemployment rate stuck at 3.0% in the April 23rd ending period. Also, the total number of benefits claimers under all programs decreased by 171,547, to 8.0 million, but for the April 16 ending period.

The highest insured unemployment rates in the week ending April 16 were in Alaska (6.0 percent), Puerto Rico (4.8), Oregon (4.4), Pennsylvania (4.2), California (4.1), Wisconsin (4.1), Rhode Island (3.9), Idaho (3.9), New Jersey (3.9), Nevada (3.8), and Montana (3.8).

The largest increases in initial claims for the week ending April 23 were in New Jersey (+5,326), Massachusetts (+4,027), Pennsylvania (+2,306), Ohio (+1,700), and Connecticut (+1,601), while the largest decreases were in Florida (-1,861), North Carolina (-1,662), Missouri (-1,618), New Mexico (-1,417), and Arizona (-1,138).



Article should interest investors in Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM), Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), General Employment Enterprises (NYSE: JOB) and TeamStaff (Nasdaq: TSTF).

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